Wholesale rate spike prompts back-to-back fixed home loan increases at major banks
New Zealand's two largest banks have lifted fixed home loan rates within a fortnight of each other, as renewed conflict in the Middle East pushes up the wholesale funding costs banks rely on to price mortgages.
Wholesale costs climb as banks pass on higher funding rates
ANZ, the country's largest bank, raised its fixed home loan rates by 10 to 26 basis points across terms of six months to three years, effective Thursday. Its six-month special rate rose to 4.79%, the one-year to 4.99%, the 18-month to 5.45%, the two-year to 5.49% and the three-year to 5.59%, with four and five-year rates left unchanged, RNZ, interest.co.nz, and 1News reported.
The move follows a sharp rise in swap rates, the wholesale benchmark banks use to price fixed lending, with one-year swap rates climbing from just over 3% at the start of July to 3.43%, and two-year rates lifting from 3.36% to 3.7% over the same period.
ANZ personal banking managing director Grant Knuckey said the increases reflected pressure building well beyond New Zealand's borders.
"Banks get their funding for lending from a variety of sources, including borrowing from global wholesale markets," Knuckey said. "When global uncertainty pushes up those funding costs it puts upward pressure on lending interest rates including home loans."
ANZ's move follows Westpac, which became the first major bank to lift fixed rates on one to three-year terms in late July, also citing the conflict.
Westpac NZ managing director Helen Ryder said "re-escalating tensions in the Middle East have once again driven up wholesale interest rates, causing bank funding costs to rise."
Savers gain as term deposit rates also rise
The picture isn't only about borrowing costs, though. Alongside its home loan changes, ANZ lifted term deposit rates by 10 to 30 basis points across terms of six months to two years, taking its six-month rate to 3.55%, which the bank said was the highest in the market, while its 18-month and two-year rates rose to 4.2% and 4.3% respectively.
Knuckey said borrowers under financial pressure should reach out early rather than wait.
"We're here to support households and businesses and discuss the options that may be available to help," he said.
ANZ noted that around 44% of its home loan customers were at least six months ahead on repayments, having chosen to maintain higher payments as rates fell earlier in the easing cycle.
Fixed-rate decisions grow more complex for borrowers
The rate rises complicate what has become a more difficult decision for borrowers approaching a refix, with the gap between short and long-term rates narrowing as costs rise across the curve.
This follows warnings from ASB, which said in July that mortgage rates had likely passed their cycle low following the RBNZ's OCR hike to 2.5%.
ANZ economists had earlier suggested that fixing twice for one year could prove cheaper than locking in a two-year term under current conditions.
Stay informed with the latest housing market trends and mortgage insights — subscribe to our free daily newsletter.
