Latest Reserve Bank figures show that in January some 76% of new owner-occupier borrowers fixed for terms of just 18 months or less

The emerging trend for new owner-occupier mortgage borrowers to go for short fixed terms is accelerating.

The Reserve Bank (RBNZ) introduced the C71 data series, which details mortgages as they are actually drawn down and for what terms they are fixed for last year. It only goes back as far as 2021, but offers interesting insight into what the borrowers are thinking - and also shows to some extent what offers the banks have been pushing at various times.

Clearly at the moment borrowers are looking forward - but not very far forward - to the time when mortgage rates might be falling again soon.

The latest figures, which are for January 2024, show that of the $3.123 billion borrowed by owner-occupiers during the month, some 76% of it (including that on floating rates) is for terms of 18 months or less.

In December 2023 the comparative total was 69.8%, while if we go back to January 2023 just 52.3% was for terms of 18 months or less.

As the RBNZ outlines in its key points summary, the top choice for term in January 2024 was the one year term, with just over a third of the owner-occupier mortgage money being fixed for that duration. The 33.1% figure for one-year terms is up from 27.7% as of December 2023 and from just 20.1% in January 2023.

The January figures show that the 18-month term, which has been fast-rising in popularity, fell back a little bit, with a 15.3%, down from 18.7% in December 2023, but well up on the 10.5% figure for January 2023.

But the thing that really demonstrates the expectation that interest rates will start being reduced soon is the very sharp rise in popularity of the previously very unfashionable six-month term.

A year ago, in January 2023 there was just 2.5% of owner occupier new mortgage money on a six-month term. That had risen to 6.5% by December 2023 and was a new high for this data series, which is admittedly only short run, dating back to 2021.

But in January 2024 a new high water mark was set for the six-month term with 10.3% of the new owner-occupier mortgage money going onto this term. And interestingly, the actual amount of this money, at $332 million, was actually the highest since the start of the series too - and that's despite the fact that the overall amount of money borrowed by the owner occupiers dropped from $4.948 billion in December 2023 to just $3.123 billion in January 2024.

And the interest in going super-short is not confined to the owner-occupiers either. The share of new residential investor lending on 6-month fixed terms increased from 8.5% to a new series high of 17.8%.

Based on this sort of thinking it looks like these new mortgage holders are hopeful that interest rates may be in their way down in the second half of this year.

It's worth noting that the wholesale interest rate markets are pricing in a two-thirds chance that the Reserve Bank will make its first cut to the Official Cash Rate (currently at 5.50%) in August. The only problem with that is the RBNZ doesn't reckon it will be cutting the OCR till next year, according to its latest set of forecasts.

Time will tell whether those punting on the six month term have been proven right. And really, at this stage it is anybody's guess.