Switch decision could put floaters in a fix

In its latest Real Estate Overview BNZ said that some risk is attached to borrowers wait and see approach.

"We believe a substantial number of borrowers are sitting floating waiting until it is apparent fixed interest rates are going to rise and when they believe that point has been reached they will switch to a fixed rate," the report said.

"However, when banks lend at a fixed rate they borrow at a fixed rate as well and over short periods of time it is not possible for banks to switch substantial borrowings from floating to fixed."

"What that means is that when the point is reached at which borrowers decide to switch into fixing the fixed interest rates will jump sharply higher almost immediately as banks seek to preserve margins. Therefore, borrowers need to be aware that although borrowing at a floating rate is currently cheap the floating strategy does entail some risk if one plans to fix."