Refinancing climbs to record levels amid cashback competition
A record number of New Zealand mortgage holders switched lenders in June, with cashbacks, short-term loan structures and lower break fees driving the trend.
Cotality Chief Property Economist Kelvin Davidson said more than 3,500 existing mortgage holders changed banks in June, based on Reserve Bank of New Zealand data, representing nearly $2.5 billion in lending. Both figures were record highs since data began in 2017.
Mr Davidson noted that the structure of today’s mortgages played a key role. With about 14% of loans on floating rates and another 39% due to roll off by the end of 2025, many borrowers can switch without incurring significant break fees.
Cashbacks are another important incentive. Banks continue to offer these deals to attract new business, which in turn has raised consumer awareness and encouraged borrowers to explore their refinancing options. The increased visibility and role of mortgage advisers has also made it easier for households to compare terms and make a move.
Lending activity remains broad-based
In total, new mortgage lending in June reached $8.3 billion, up $2.6 billion on the same month last year. That figure included purchases, top-ups and refinances
"Meanwhile, across all owner-occupiers, the loan to value ratio limits are still not really being tested – 12.1% of lending in June was done with a deposit less than 20% – but this type of lending remains popular with first home buyers. They still account for 75-80% of all low-deposit owner-occupier activity, and nearly half of all first home buyers are entering with less than a 20% deposit," Mr Davidson said.
"Around 15% of owner-occupiers (by value) took out interest-only debt in June, and almost 35% of investors. Going back to 2017, those figures were closer to 30% and 50% respectively, so interest-only lending could be considered ‘under control’ at present. Interest-only lending remains well below past peaks, with no strong indication it is being used to manage financial stress, as was observed during COVID."
Outlook points to continued switching
Mr Davidson said refinancing may stay elevated in the near term, given the large number of borrowers due to refix as well as the gap between average mortgage rates and current market levels.
"As loans mature, borrowers will need to decide not only what term to refix on, but also what to do with their ‘cash windfall’ from lower repayments. Some may use that capacity to reduce the length of their mortgage (by keeping repayments the same), while others may save it, thereby reducing the pass-through to economic activity," he said.
Get in touch if you’d like advice on whether switching your mortgage could help you take advantage of today’s conditions.