Confusion And Commitment Worries In Mortgages

New research shows people making loan decisions that conflict with their beliefs on future interest rate changes

WELLINGTON, 15 October - New research, commissioned by Superbank, highlights the human impact of rising interest rates and falling house prices, confusion exists about whether to sign up to a variable or fixed rate mortgage - and for how long. The research is timely given the recent announcement by the Real Estate Institute of New Zealand (REINZ) that the median house price in New Zealand fell from $249,000 to $247,000 in August and the uncertainty around future rate increases.

The research shows that expectations and feelings on interest rates often run in conflicting directions. For example, 40 per cent of people who think rates will drop in the future still plan to fix their mortgage. Conversely, 15 per cent who expect rising rates are also some of the most concerned about paying too much if they fix and interest rates subsequently go down."We believe that twelve months ago these concerns would not have been as marked - this is the human face of a rising interest rate environment for home-owners," says James Munro, chief operating officer of Superbank. "The number of people making loan decisions against their better judgement really surprised me. However, with interest rates so high, people are really agonising about the decision to fix or float their mortgage - nobody wants hindsight to prove them wrong."

This finding came from nationwide telephone research by New River that polled 482 people over the age of 18 in early October. Other interesting findings included:

-· While 38.2 per cent of people currently have a mortgage, 3.3 per cent are still planning to get a mortgage in the next six months despite the uncertainty ·

- 48 per cent expect interest rates to keep rising over the next year, while 38.5 per cent believe that the rate will rise a little further and then drop. Nobody believes rates will fall

-· The threat of a big rate rise looms largest as the main concern for 40 per cent

·- For 15.5 per cent, being stuck on a fixed term while rates fall worries them the most

"Like many others buying our first house was a big step, but one we felt well advised in," says Sarah Futter, a recent Superbank customer. "After Superbank recommended a fixed loan with small floating component, we still sought advice from parents, friends, newspapers, anywhere - before we felt confident of signing on the dotted line. With the unpredictable way the market is today, I would recommend that everyone get as much information as they can before making a decision."