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Elevate Magazine
January 31, 2025

Record Mortgage Switching as Borrowers Seek Lower Rates

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Photo Source: AS Photography

New Zealand homeowners scrambled to refinance their mortgage debt in December 2024, with more than $2 billion shifting between banks and non-bank lenders.

This surge marked the highest level of mortgage switching since the Reserve Bank began tracking such movements in 2017, as borrowers sought relief from elevated interest rates.

Record Surge in Mortgage Refinancing Activity

The surge in mortgage refinancing in December 2024 underscores a growing trend of borrowers actively seeking better deals. Banks have rolled out enticing refinancing offers to attract customers, with competition between lenders heating up.

The record shift in home loan debt also hints at shifting borrower expectations, with many anticipating lower interest rates soon.

Housing Market Shows Early Signs of Stabilisation

The New Zealand housing market is beginning to stabilise, as indicated by the second consecutive increase in the REINZ House Price Index in December.

While this suggests a gradual recovery, market activity remains sluggish due to an excess of housing stock that limits homeowners’ ability to move. Investors are becoming more active, but owner-occupiers remain cautious.

According to ANZ’s latest forecast, house prices are projected to rise by 6% in 2025, with the bulk of the growth expected in the latter part of the year, which may help restore confidence in the market.

Falling Mortgage Rates Boost Borrower Optimism

The ongoing refinancing boom is largely driven by expectations that mortgage rates will soon decrease. David Cunningham, CEO of Squirrel, predicts that home loan rates could dip below 5% in the near future.

“Further, I think there is potential for mortgage rates to fall by about 0.5% in the next month or so, even without OCR changes,” Cunningham stated.

The Reserve Bank is expected to cut the Official Cash Rate (OCR) by 50 basis points in February, further easing borrowing costs.

Lenders now have room to reduce mortgage rates, with wholesale interest rates already falling. Economist Shamubeel Eaqub noted that, while the reductions so far have been small, they reflect a broader trend of decreasing borrowing costs.

Borrowers Capitalise on Competitive Refinancing Offers

Mortgage rates are expected to fall further, prompting borrowers to shop around for the best deals. Many homeowners are taking advantage of the situation by refinancing, aiming to lock in lower rates before the market shifts.

Lenders, facing increased competition, are providing more flexible refinancing options to make it easier for mortgage holders to switch.

Banks are offering cash incentives and discounted rates to attract new customers.