ASB and Westpac have both increased their variable rate mortgages to 10.05% and their mainstream competitors can be expected to follow. Kiwibank has also increased its floating rate in line with the 0.25% rise in the OCR but is still under-cutting mainstream rivals with a rate of 9.5%.
The cost of floating rate homeloans is driven by the OCR and it also has an influence on shorter term fixed rates, some of which have edged up over the last week. There was also some movement in fixed rates in the days before the OCR was raised. Longer term fixed rates are driven by international funding costs, particularly in the US. Chris Tennent-Brown, CBA New Zealand economist does not expect international rates to fall significantly in the near future.
Five year rates from major lenders are priced at 8.60% and 8.70% but at historically high levels borrowers who can afford to pay a higher rate might be better off with shorter-term fixes over one to three years, and possibly a mixture of terms, in the hope that rates are finally close to a peak.
Interest rates are not the only factors at work in the mortgage market at present. Banks are trying to rebuild profit margins and before the latest OCR move the main lenders were charging the same rates virtually across the board. The coming weeks will test their resolve if they have decided to present a united front. For borrowers this means, potentially, a much less competitive market in future.
Advertised rates are only part of the story, of course. Banks have been discounting heavily. But they are negotiating with mortgage brokers over commission payments and a survey by Good Returns found that nearly 60% of brokers who responded thought banks would be less inclined in future to negotiate over rates than in the past.