Longer term fixed interest rates slowly bite into floating terms

Two-year fixed mortgage rates are starting to slowly eat into the share of total lending by banks.

Starting from a low base of 4.9% in January, the share of new lending on two-year fixed terms rose to 11.2%, or $451 million, in February as the OCR came down to 3.75% and is expected to drop to 3.25% next month.

While it is widely expected borrowers will begin to opt for the two-year rate as their mortgages roll off higher interest rates this year, the latest Reserve bank data shows most borrowers are still overwhelmingly electing floating rates.

Of new mortgages taken out in February nearly 40% were on floating rates. That was an 8% increase from 31.8% in January.