Kiwibank blazing the trail for floating rates

Mortgage Rates

Kiwibank communications manager Bruce Thompson says Kiwibank made the change to its floating rate because it wanted to make sure it retained a competitive position.

He says a lot of people are uncertain about what's happening with interest rates so they are going on the floating rate to watch and wait.

"People are doing a mixture of variable and fixed rates and we want to make sure when they look at what's available they see they get a good rate with us."

He says most people are looking to fix because it is perceived that rates will go up in the middle of the year, however there is still strong demand for the floating rate with 40% of drawdowns on the floating rate.

BNZ economist Tony Alexander says we are seeing a change in the floating rate now because of weak data and unemployment numbers which suggest the official cash rate, which is at a record low of 2.5%, won't rise until June. Previously many economists were expecting a rise in March or April.

He says if any other banks make movements he expects them to be minor because there has not been much of a change in 90-day bank bill yields and it is more expectations of them changing rather than the immediate cost of borrowing changing.

Alexander believes the option of floating looks best for most people and as we approach the time when floating rates start rising - mid-year - for a while the optimal thing may be to fix one year, as many are still choosing to do at the moment.

His advice for borrowers is to budget for about a 3% rise in floating rate borrowing costs between the middle of this year and the end of 2011.

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