Fixed mortgage rates below 5% are the next benchmark to become increasingly rare.
Today, ASB raised its one-year and eighteen-month fixed rates. This reflects a recent hike by Westpac, and these two banks are the first two to have no rates below 5%. This is unheard of since June 2015.
Today’s change by ASB was not significant, and it was offset by even smaller increases in two short-term deposit rates.
But these repeated small moves add to a developing trend where yield curves are flattening as they rise.
As we enter the spring home sales season, rising mortgage interest rates are unusual. This is often the time of year when rates become most competitive and drop. But sales volumes in the housing market remain very low and the mortgage market is now dominated by refinancing activity. General market uncertainty by borrowers likely makes it easier for banks to retain existing customers who may be nervous about exposing their finances if they seek an alternative bank. A cautious attitude of borrowers creates the conditions allowing banks to slightly improve their margins.
But for borrowers with strong enough finances, now is probably a good time to shop around. Banks will have fewer opportunities to gain market share and they will seize them with enthusiasm. The reappearance of cash and non-cash incentives is testament to this, some of which cap out at up to $20,000.
A check of the swap rates at the bottom of this article shows that we have experienced a period of steadily rising wholesale rates which began in early August. This is a trend that has been driven by global forces, particularly the US Federal Reserve. Bond markets have come to accept that the will of the Fed will prevail until the back of inflation is broken. It can take a long time.
The Fed’s next review is on September 22, NZ time, and financial markets are coming to terms with another 75 basis point hike as a real possibility. This means that wholesale rates will come under upward pressure even as the United States faces growth challenges. The Fed has made it clear that it is ready to pay the price of economic growth to bring inflation under control. If they don’t, their market credibility will be shot.
And for New Zealand, that means we won’t be able to avoid these upward pressures.
The next time we get a Consumer Price Index reading will be October 18th. It’s now only five weeks away. At best, inflation may have peaked in September as gasoline prices plateaued. But the labor market remains tight, the New Zealand dollar is depreciating and imported inflation shows no signs of abating. You’d be brave to assume September’s CPI will be significantly lower than June’s rate of 7.3%, so no relief in that department is on the horizon.
A helpful way to make sense of these home loan rate changes is to use our full function mortgage calculator which is also below. (Term deposit rates can be estimated using this calculator).
And if you already have a fixed-term mortgage that is not up for renewal right now, our break cost calculator can help you assess your options. But while breakout fees should be minimal in a rising market, they will start to bite in a falling market.
Here is the updated snapshot of the lowest advertised fixed term mortgage rates currently offered by major retail banks.