How Kiwis' borrowing has changed

New Zealanders are changing the way they borrow.

Squirreled away in the back of this week’s Reserve Bank monetary policy statement is some fascinating data which shows just how that shift is occurring.

The glaring change is the way mortgages are now being structured.

Back in the middle of the last decade there was a surge in fixed-term mortgages, and this is one of the reasons why the Reserve Bank’s official cash rate hikes were so ineffectual.

A hike in the OCR would not have much effect if fewer than 20% of the country’s mortgages were on fixed terms.

As can be seen from the graph, put together by NBR ONLINE from data in the Reserve Bank’s monetary policy statement, there has been a dramatic shift away towards floating rates since the end of 2008.

But note the curve away again over the past six months.

The proportion of mortgages on floating rates peaked in April at 631% of all mortgages and has fallen away to 58.7% currently.

Other changes are afoot in how banks chase clients in this area.

While retail mortgage rates have been largely unchanged since June – following a short mortgage mini-war in the first part of the year - the Reserve Bank’s statement reports banks are doing what perhaps they should have been doing over the past decade: targeting better-quality credit risks.

“Banks remain competitive and they are increasingly targeting good credit-quality borrowers – for example, those with more than 20% equity – with lower rates than standard advertised rates,” the bank says.

Although house price data has caused alarmists to raise the spectre of the kind of credit spree the country saw over 2004-07, a period which saw banks sign up virtually anybody who wanted one to a 110% mortgage and probably throw in a credit card are two as well, this is not what is happening at the moment.

The price increases are largely due to supply constraints rather than a surge in demand for investment properties.

In a rare venture into the quasi-political arena, Reserve Bank governor Alan Bollard suggested on Thursday the Auckland Council’s rules on land use are one of the factors pushing up prices in that region.

“There is some evidence there that it is a matter not so much of building costs, it is land costs.

“That is a challenge for the Auckland authorities and if they can’t meet that challenge people will go elsewhere – to places where they can build more cheaply.”