Big swing from fixed to floating home loans

Record low floating interest rates have led to a big swing away from fixed-term mortgages by home owners, while home-loan affordability remained stable in November, two surveys show.

Over the 12 months to October the average number of fixed interest and term loans dropped from 70 per cent to 63 per cent of all loans, according to new figures from Canstar Cannex.

Canstar Cannex analyst Mitchell Watson said 142,000 more floating loans have been taken out by home owners over that time as the Reserve Bank slashed the official cash rate to 2.5 per cent.

That has resulted in some floating rates falling to 5.75 per cent, their lowest level in 41 years, Mr Watson said.

The savings to be made with "rock bottom" floating rates were a powerful draw card, he said.

Repayments on a $250,000 mortgage over 25 years could be more than $185 a month higher on the most popular two-year fixed rate and nearly $427 a month higher on a five-year term, based on an average of the amount charged by the main trading banks.

Fixed rates have traditionally been cheaper than floating rates, but that changed in August last year when fixed rates rose above floating rates.

Those "lucky gamblers" who fixed at the bottom of the interest rate cycle in April were able to take advantage of an interest rate below 6 per cent, Mr Watson said.

Fixed rates would continue to head up in anticipation of the Reserve Bank's increasing the official cash rate early next year, he added.

National Bank was the latest to increase its one-year and 18-month fixed rates to 6.15 per cent and 6.6 respectively.

A measure of home-loan affordability shows almost no change overall in November, although affordability worsened in Auckland and Northland and for first home buyers.

- © Fairfax NZ News