Record surge in amount of mortgage money moving to fixed rates in December as homeowners digested Reserve Bank's November OCR announcement and then acted - decisively

They waited and then they acted. And boy, did they act.

Big numbers of home owners clearly wanted to see what the Reserve Bank (RBNZ) was offering in its November Official Cash Rate (OCR) review before deciding definitively what to do with their mortgages.

The result was a very busy December, and a massive surge of mortgage money into fixed rates.

According to latest Reserve Bank figures, in a data series that goes back as far as 2004, the total amount of mortgage money (both new and existing mortgages) on fixed rates shot up by a record $13.929 billion in December to $344.015 billion.

There's now a range of RBNZ data series that cover mortgage information with overlaps of information between them. 

We recently highlighted figures for November  from a different RBNZ data series showing the mortgage options taken out by new mortgage holders.

And these figures show that nearly 50% of all the mortgage money uplifted in November was on floating rates. 

Clearly there was a lot of people waiting to see what the Reserve Bank bank  would do in November. The expectation/hope was for more cuts. So, for seemingly quite a lot of people, the approach was to hold off going for longer term fixed rate mortgages, park it on floating or a very short term, and wait for better rates being offered later. 

An unpleasant surprise 

As we know, the RBNZ DID cut the OCR again in November from 2.50% to 2.25%. However, the messaging delivered by the RBNZ folk along with the cut just about closed the door on future cuts - and that surprised everybody. The expectation had been that the RBNZ would very much keep an open door for potential future cuts. But no. And the result was a big change in  the mood of the financial markets, and a rise in wholesale interest rates, which has now led to some rises in mortgage rates too. And that's not what was expected. Not so quickly.

As mentioned, the monthly data on new mortgages showed a big surge to floating in November. 

Well, this was also highlighted in the other data series we talked about at the top of this article. And this data series captures all existing mortgages and highlights how much time mortgages have yet to run before their next refixing. 

This data shows that in November the total amount of mortgage money on floating rates rose sharply from $51.615 billion to $59,042 billion, but then in December  it plunged to 47.292 billion - at the  same of course as the amount  on fixed rose - as stated higher up - by nearly $14 billion.

So, December was clearly 'decision month' for a lot of people in terms of putting their mortgages on to longer rates. We already know from yet another RBNZ data series that December was a record month for bank switching, with some $5.8 billion worth of mortgages swapping banks. 

I await the next batch of data showing who has fixed and for what with new mortgages. That data for December will be out next week.

But we can see from the figures for all existing mortgages that there have been some big moves - and finally some mortgage holders have seen the time as now right to 'go long'.

Pushing out the horizon

Five year terms have in recent times been virtually moribund, but there was a sudden spike in December, with the amount on five year terms shooting up (admittedly from an extremely low base) from $1.262 billion to $3.781 billion.

Regardless of the low base that rise of over $2.5 billion in five-year mortgage terms is a lot in one month. Maybe the banks thought that too, because its noticeable that this week's wave of mortgage rate hikes from the banks has been mostly focused on longer term rates.

Since the beginning of 2024 the country has been gripped with a 'short is good' mood as people have stood watch over the RBNZ and waited for the rate cuts. And they have been rewarded, with the OCR having been dropped from 5.5% to the current 2.25% since August 2024.

Now though, with inflation looking stubbornly high, the tide has turned. Now more people will likely think 'longer is stronger'.

There's still a big wave of refixing of mortgages to come over the next few months. So, it's going to be fascinating to see what options the home owners take. Happy fixing, folks.