The Great Reset: Over $200b of mortgages up for refixing in first half ...

It's the Great Reset. The great mortgage reset of 2025.

Over $200 billion worth of mortgages on either floating or short term fixed rates are up for a re-fixing in the first half of this year. That works out at an average of well over $30 billion a month.

Reserve Bank figures for the last month of 2024 show of the grand total of $369.546 billion of outstanding mortgages, $159.899 billion was fixed for six months or less and $42.8 billion was floating.

That's a combined total of $202.699 billion either fixed or floating that either must be, or can be, refixed before the end of June.

And it makes up 54.9% of the total mortgage pile, demonstrating how the country's home owners have been going shorter and shorter with their mortgage terms as expectations of interest rate falls have grown.

As the below graphic taken from the Reserve Bank's summary of the monthly mortgage figures shows, the 54.9% of fixed or floating mortgages up for a reset in the first six months of the year compares with a percentage of just 38% as of December 2023, and 32.3% in December 2022.

To look at a slightly longer timeframe, as at December 2024, a total of $304.139 billion worth of mortgages was up for a refix by the end of this year. 

This means 82.3% of the current $369.546 billion mortgage pile will see an interest rate reset this calendar year. A year ago, in December 2023 the comparable percentage figure was just 66.6% and in December 2022 it was 59.5%.

What it means in practice is that the vast majority of the country's mortgages will be quickly responsive to whatever changes there may be to market rates in coming months. 

As the move to shorter and shorter term mortgages has gathered pace, then so the homeowners have looked to become more and more nimble.

Looking at the figures for October 2024 through to December 2024 shows some major swapping between fixed and floating - and then back again.

In October there was $42.744 billion of mortgages on floating and $323.317 billion fixed (that's all terms, both long and short).

In November 2024 the amount on floating had blown out to $53.651 billion (highest monthly floating total since October 2016), while the fixed total had shrunk to $314.172 billion.

In December the floating total virtually shrank back to where it had been before, at $42.8 billion, while the fixed amount grew again to $326.746 billion.

For comparative purposes it's worth saying the grand total of all mortgages in October 2024 was $366.061 billion, rising to $367.823 billion in November, and $369.546 billion in December. So, it didn't grow by all that much during that three month period, meaning comparing the movements of figures within the totals is reasonably apples-with-apples.

In terms of trying to work out where the nearly $11 billion worth of mortgages that apparently went from fixed to floating and back, well, we can't exactly, based on the figures.

But what we can say is amounts of fixed rate mortgages up for refixing in between three and six months time blew out by around $8.5 billion between November and December, rising from $53.723 billion to $62.208 billion.

The Reserve Bank began cutting the Official Cash Rate (OCR) from the cycle high of 5.50% in August, with a 25 basis-point cut. This was followed by 50 point cut at the next review in October.

The last OCR review for 2024 was on November 27. 

Ahead of that November review it was widely expected another 50 basis points would be trimmed from the OCR. This was duly done.

Now all eyes are on the first OCR review for 2025 on February 19. Reserve Bank Governor Adrian Orr was surprisingly explicit (compared with past Reserve Bank conventions) in his post-November review press conference in strongly indicating another 50 basis-point cut will be coming in February.

Assuming that comes to pass and we have a 3.75% OCR come February 20, those $200 billion-or so mortgage holders looking to refix by the end of June will need to work out a couple of things.

Firstly, how much lower will the OCR go? The Reserve Bank's November Monetary Policy Statement (MPS) implied the OCR might not go lower than 3.50% this year. But other economists are suggesting it will be 3.00% by the end of the year. 

Secondly, how much lower may mortgages go? Cuts to the OCR do not guarantee equivalent cuts to mortgage rates, particularly not if banks have been cutting mortgage rates ahead of OCR reductions - and they have been.

So, plenty to think about.

While the rises in mortgage rates that began in the second half of 2021 in reaction to rising inflation have added considerably to some monthly interest bills, the levels of non-performing loans - while up - have not risen precipitously.

The Reserve Bank's monthly 'loans by asset quality' data series shows in December there was a $26 million increase in non-performing home loans, to a total of $2.16 billion.

In the whole 2024 calendar year the non-performing home loan total rose by $643 million (42.4%). 

The $2.16 billion non-performing loans total represents 0.6% of the total outstanding mortgage pile. 

While you have to go back to 2013 to find a non-performing loans percentage as high as 0.6%, the current figure is still well below the levels seen in the post-Global Financial Crisis 2009-2012 period when the non-performing percentages frequently hit 1.2%.

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