ASB has kicked off a new round of substantial home loan rate increases.
It has matched them with some term deposit increases too but those tend not to be for terms where most savers invest.
The higher mortgage rates are in direct response to sharply rising swap rates recently.
Daily swap rates
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And these hikes come ahead of the RBNZ OCR rate review due this afternoon. This timing has a whiff of arrogance by ASB.
They also come after ASB has apparently decided to ignore the RBNZ's Funding for Lending programme offer of 0.25% money. Rather the bank has focused on the rising swap rate.
Today's hikes are substantial.
ASB has raised its six month fixed rate by +30 bps to 3.29%
It has raised its one year fixed rate by +36 bps to 2.55%, and its two year rate by the same amount to 2.95%. It is these two rates hikes that are the significant ones.
Their new rates for three, four and five years are all up by +30 bps to 3.29%, 3.69% and 3.99% respectively.
This hike is important because ASB is the second largest home loan lender in New Zealand and tries to take a leadership position in the mortgage market as it chases ANZ.
It is likely that the other major banks will follow this hike, given the cover that ASB has now given them.
Craig Sims ASB’s executive general manager of Retail Banking says, “The New Zealand economy is proving robust, and the economic outlook has improved. While interest rates are now increasing, they remain at historically low levels.
“We’re mindful that some first home buyers in particular have only ever experienced the current low-rate environment. When we assess a home loan application we use a ‘test rate’ that is substantially higher than current mortgage rates to give customers the confidence they can continue to make payments if rates increase.
“We encourage home lending customers to talk to us about their options, which could include spreading mortgage amounts over different terms to give certainty over time or making extra payments while rates are very low.
“ASB is focused on the long-term financial wellbeing of our customers whether they’re borrowers or savers. In line with this the changes to our Term Deposit rates today will see our most popular 6-month term move to 1.00%.
“We’re committed to offering innovative home lending products such as our 1.79% variable Back My Build loan for customers building a new home, and helping customers budget with the comprehensive calculators and tools available on our website.
“Whatever the market conditions, our focus is squarely on offering customers market-leading home lending products and leading customer experiences,” said Mr Sims.
Now that we are in a mid-Winter real estate season and sales volumes are falling away somewhat, now is a good time for bank pricing managers to push through rate increases. Even if they overdo it, it will allow them to offer 'specials' and 'discounts' when the Spring real estate season kicks off - in only about eight weeks from now.
The opportunities to lock in low fixed rates may be fading, but the current offers are still historically low, so probably still deserve attention if you are the view that rates can only go up over the next few years.
One useful way to make sense of these changed home loan rates is to use our full-function mortgage calculators. (Term deposit rates can be assessed using this calculator).
And if you already have a fixed term mortgage that is not up for renewal at this time, our break fee calculator may help you assess your options. Break fees should be minimal in a rising market.
Here is the updated snapshot of the lowest advertised fixed-term mortgage rates on offer from the key retail banks at the moment.
| Fixed, below 80% LVR | 6 mths | 1 yr | 18 mth | 2 yrs | 3 yrs | 4 yrs | 5 yrs |
| as at July 14, 2021 | % | % | % | % | % | % | % |
| ANZ | 3.39 | 2.19 | 2.35 | 2.59 | 2.99 | 3.99 | 4.39 |
 |
3.29
 |
2.55
|
2.79
|
2.95
|
3.29
|
3.69
|
3.99
|
 |
2.99 | 2.19 | 2.35 | 2.55 | 2.99 | 3.39 | 3.69 |
 |
3.55 | 2.19 | 2.55 | 2.99 | 3.39 | 3.69 | |
 |
2.99 | 2.19 | 2.45 | 2.59 | 2.99 | 3.39 | 3.69 |
| Bank of China | 3.45 | 2.15 | 2.15 | 2.55 | 2.75 | 3.05 | 3.35 |
| China Construction Bank | 4.70 | 2.65 | 2.65 | 2.65 | 2.80 | 2.89 | 2.99 |
| Co-operative Bank (*FHB only) | 2.19 | 1.99* | 2.39 | 2.59 | 2.99 | 3.39 | 3.69 |
| Heartland Bank | 1.85 | 2.35 | 2.45 | ||||
| HSBC | 2.79 | 2.09 | 2.19 | 2.49 | 2.79 | 3.19 | 3.49 |
| ICBC | 2.89 | 2.15 | 2.15 | 2.35 | 2.75 | 2.99 | 3.19 |
 |
2.79 | 2.19 | 2.39 | 2.49 | 2.79 | 3.09 | 3.39 |
[incl Price Match Promise]  |
2.89 | 2.19 | 2.35 | 2.55 | 2.99 | 3.39 | 3.69 |
Fixed mortgage rates
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80 Comments
They could but that's not how cartels work.
We're drowning in mortgage debt and I guess banks can't grow their loan books much more. Therefore, raising rates will help the cartel cream more margins on existing loans and keep New Zealanders in debt servitude for longer.
The fact that rates had to be increased by over 16% has something to do with it.
In simple terms, banks establish and monitor certain limits on their lending capacity without overly-exposing themselves to possible future losses.
Often when quantitative risk managers believe a lending institution is approaching these limits, they force interest rates upwards in an attempt to both accumulate more reserves and reduce borrowing demand.
Yup but its all built off the OCR.
OCR is the 'risk free rate' - if you increase the OCR you increase the required return on all investments. Thus OCR increase -> bond yield increase, also Equity required return increase. So it doesn't matter where you get your money from, an increase in the OCR will increase the cost of that funding.
Fixed rates are affected more by Wholesale rates while the OCR affects floating rates.. Interesting to note the Wholesale rates have barely changed in the last few months, yet the banks have jumped on in a slapped on many multiples more of margin. Guess ASB's focus is to smash all records on profit now they have grown their mortgage book size to record levels too
If they are looking to fix a home loan interest rate "cheap for long" then they won't be fixing for 12 months. They'll be fixing for 4-5 years.
And the best time to do that has already past because we're already on the rising side of the crest.
Rates are only going to rise. Fix now and head off the increases in the next several years.
Where did you see kiwibank has followed, their website is still 2.19% and 2.55% for 1 &2 year?
"Asked whether Kiwibank would also be increasing its mortgage rates, a spokeswoman said the bank was currently reviewing its rates but would not make an announcement today."
Professor Richard Werner says interest rates follow GDP down. I'm quite sure during Covid, NZ has not miraculously solved their productivity problems. They have however flooded every orifice with new credit. So do you raise interest rates to put a cap on the inflationary pressures of QE? Or just stop QE first?
whilst not definite - it's likely they are worried about the incoming RBNZ capital requirements - which the RBNZ requires banks to have a certain buffer of capital (deposits) to protect against the bank failing. The RBNZ proposed a lift in capital requirements in 2019 to take effect in 2020- these were delayed becasue of Covid.
Deposits in the last few months have started to decline - as people spend their money on houses, renovations, new cars etc.
To lift its deposits - ASB will need to incentivise people to not withdraw their money and ideally save more - so they lift deposit (both savings and Term) interest rates. However to preserve their margins (the amount of profit they make) they also have to lift mortgage interest rates.
Yesterday ASB and kiwibank lifted deposit interest rates - so this is the counter rate lift to hold the margins. Kiwibank may follow by lifting their rates as well- although they only lifted deposit rates for their 200 day term deposit and its a special offer valid until this weekend- so depending on how many deposits they get - they may not need to lift their mortgage rates.
Damn- my prediction was out by a month- I have stated a number of times it would be an August lift in Mortgage rates and I was 3 weeks too late.
Not really a surprise - with the new RBNZ capital requirements kicking in this year for the banks and deposits falling in recent months - the only way to get deposits back is to lift term deposit rates- which will then mean a lift in mortgage rates at the same time if banks margins are to be maintained.
I don't think it's fair to say ASB are ignoring the funding for lending programme - they have said they are using those funds for the Back My Build product, which remains at an interest rate of 1.79% after today's rate hikes. They had $2 billion worth of applicatioins for that product in the first month so it's a raging success.
The funding for lending programme is based on a floating interest rate, so it should move independently of fixed interest rates.
You'll have a quote to back that up then.. Can't recall anyone saying rates would never increase a tiny amount. But I sure don't think they are going to increase far and fast like the DGM chicken littles' keep implying, simply because the RBNZ knows that would be like throwing a grenade into a packed auditorium.
Pragmatism
Agreed.
I assumed Brock was talking about “clown” claims being by his ilk. :)
Personally posted five or six weeks ago that due to upside to interest rates that BNZ 2.99% for 5 years was attractive . . . and more upside to come.
Posted for a least a couple of years that one should be looking to pay down debt for the reasons that are now occurring.
Personally posted many times I have experienced three down turns (albeit short term of two or three years) in house prices.
Brock and dyb need to get a handle on things.
Rates will increase, and not by a tiny amount. As a start, just look at the RBNZ projections, made with data that is already obsolete and that now is all pointing towards a need for higher rates than previously planned.
Stating that interest rates will not increase significantly is wishful thinking.
The same RBNZ that keeps saying inflation is transitory and it will ignore it for now? And pay attention, I said they wont increase significantly and quickly. In a decade they may well be back at 5 or 6%, depending on how the economy behaves, but not in a year or two like some here are wishing for.
https://www.newshub.co.nz/home/money/2021/07/asb-increases-interest-mor…
Why just before RBNZ announcement ?
Is it to influence Mr Orr to not act on OCR or be soft !
their website is showing effective today- but sometimes if you have a pre-approval and are close to making an offer or settling the loan they will give some leeway- pays to have a discussion with the bank and will depend on how good a customer they view you as - if they are your main banker and they get most of your transactions ie transaction account , credit card etc they can be quite generous in what they offer.
What's happening with the FLP giving banks access to money at 0.25% until at least July next year. So far they have only tapped into >$5billion of the $28 billion available.
Surely the banks can't lift rates whilst this super cheap money is available to pass onto customers???
Unless they plan to raise rates and then grab the FLP money and make some serious margin.
Interest rates offered by banks should be going down as they tap into this 0.25% money and passing it onto customers, regardless of the OCR raising - they can still access this money.
The FLP money is a small percentage of their asset base, it's not the whole thing. I believe as another has commented ASB said they are using the FLP for a build loan offer at 1.79%, and that hasnt moved. FLP is also variable rate - so if the OCR does go up, so does the cost to the bank. No treasurer is going to use to fund fixed rates.
Rates are too low to have any adverse effect on housing market for even it it goes up slightly current low interest rate environment is more or less permanent.
https://i.stuff.co.nz/life-style/homed/real-estate/125743196/why-house-…
That isn't correct either. The data is clear; FHBs are taking our many more loans (by number) and are winning an increasing share of all mortgages being issued. No evidence FHBs are being frozen out. And secondly, if you are scared off by a 2.95% fixed rate, you probably don't have the financial resilience to be buying in the first place. And finally, if a low rate is your thing, ASB is offering 1.79% for a new-build loan. It is far from 'impossible', no matter what the barbeque conversation is.
So which is it now? The government is telling me that it's growing increasingly tough for FHB to afford a first home. But now your data is saying FHBs are taking many more loans and are winning increasing share of all mortgages issued? Sorry I'm so confused which direction we are heading. I only trust the Labour government and their policies.
No one is afraid of a 2.95% fixed rate. I'm sure there will be when the rates goes to 4-5-6% though. Either way, I'm very happy!
Finally, low rate isn't my thing, but the 1.79% new-build loan is a floating rate. I'm sure by the time things get built, that number will become 3.79%. Such wonderful news!
Overall very happy with the news and also enjoying my BBQ at the same time! Win-win!
The data tells the story, the government tells the spin (typically). It's true that it's hard(er) for FHBs than a year ago, when prices were lower. But actually higher interest rates suppress price growth (and converse as evidenced by 2020 data)... so it may be swings and roundabouts. This time last year, rates were at 2.55%, so same as this change.
Re the 1.79%, yes it's a floating rate, so linked to the OCR more directly than a fixed rate (and especially as FLP is directly linked)... so are you picking the OCR to go up by 2% in the time it will take to build a house? Bold.
Forgetting the fact that the rates only apply to new fixed loans, the delta isn't massive ... 0.30% on a $500k loan is <$30 per week. If people can't absorb $30 a week, they havent done their maths right when buying a home. Most people have no doubt been paying down during the golden times.
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