Today's announcement by the US Federal Reserve that it has raised its benchmark policy rate may well signal the end of low fixed rate mortgage interest rates.
While our Reserve Bank has just last week cut its official rate, that only really influences local floating and very short term fixed rates.
It is our wholesale interest rate swap markets that set the tone for our fixed mortgage rates.
And those are strongly influenced by the American debt markets.
In the past few days, ahead of the Fed announcement, we have seen a steady rise in swap rates.
We have also seen a risk in the risk premium banks must pay over and above those wholesale rates.
These underlying drivers have now moved higher to the point where we are likely to see our local banks sneak through rate increases over the holiday period, so that when you return to work in January, fixed rate offers could well be higher.
How much?
Well that depends on how wholesale markets react to today's news.
But here is an indication.
Two year swap rates are now 2.86%. The last time they were at that level was in August.
Australasian CDS spreads for investment grade debt are now 133 points. The last time they were at this level was briefly in October, and before that in August 2014. This is a proxy for the risk premium our banks must pay to access the swap rates.
Today, a bank two year fixed mortgage rate is about 4.49%
In August that same rate was 4.79%.
Ignoring the rise in risk premium, that suggests we may face a +30 bps rise; adding in the risk premium, perhaps +35-40 bps higher at 4.89%.
Of course, wholesale interest rate markets are on the move higher, so the risk is to the upside.
Our two year swap rate is now +16 bps higher than when the RBNZ eased its OCR last week.
And US Treasury 2 year yields are now their highest in five years, and tracking even higher.
The end of the low fixed rate environment we have all come to expect could be upon us.
For borrowers who need to refix, they face the prospect of sticker shock in the new year.
Those who are stretched today may find themselves stressed tomorrow. Time to plan household budgets for rising rates.
See all banks' carded, or advertised, home loan interest rates here.
The new floating mortgage rates now compare across all banks as follows:
| below 80% LVR | Floating | 1 yr | 18mth | 2 yrs | 3 yrs | 5 yrs |
| % | % | % | % | % | ||
 |
5.74 | 4.35 | 4.95 | 4.49 | 5.10 | 5.35 |
 |
5.75 | 4.39 | 4.49 | 4.49 | 4.49 | 5.09 |
 |
5.79 | 4.35 | 5.09 | 4.39 | 5.19 | 5.35 |
 |
5.65 | 4.49 | 4.49 | 4.85 | 5.35 | |
 |
5.85 | 4.39 | 4.95 | 4.24 | 4.65 | 5.35 |
 |
5.70 | 4.39 | 4.49 | 4.49 | 4.75 | 4.99 |
 |
6.10 | 4.25 | 4.49 | 4.99 | 4.99 | |
 |
5.89 | 3.99 | 4.69 | 4.49 | 4.79 | 5.29 |
 |
5.74 | 4.35 | 4.69 | 4.39 | 4.79 | 5.35 |
In addition, BNZ has a fixed seven year rate of 5.75%, while TSB Bank offers a fixed ten year rate also at 5.75%.
Fixed mortgage rates
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7 Comments
Ignoring the rise in risk premium, that suggests we may face a +30 bps rise; adding in the risk premium, perhaps +35-40 bps higher at 4.89%
Anything would be appreciated to arrest.the dash to trash. Unsecured OBR rated bank depositors are not well prepared or rewarded for home loan approval values rising at an annual rate of 20.7%.
Investors hoping to pull future earnings forward to securely capitalise their newly minted debt are dreaming given a nominal GDP growth rate in the ~3.0% ballpark. They are gamblers acting under the cover of what ex-RBNZ Governor Bollard once termed an emergency OCR rate, namely 2.5%.
interesting this morning the USA banks increased their mortgages but not their deposit rates
http://www.cnbc.com/2015/12/16/wells-fargo-bank-announced-wednesday-it-…
If that is the case, and our longer term rates are more dictated by the rates of the US and other big central banks than our own - why did we not see these 3-4% rates since '08 when the US dropped rates and kept them where they are? I don't know what the historic swaps were but surely they came down in relative sync with the US bank rate.....right?
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