Mortgage rates are continuing to rise without any prompting from the Reserve Bank.
New Zealand's central bank will review the Official Cash Rate next week and is expected to keep the rate on hold at 8.25%. But rising prices in the wholesale markets are forcing banks and other lenders to increase rates. Even floating rates, which are generally influenced mainly by the OCR, have been going up so that the mainstream banks are now charging 10.69% or 10.70%.
ANZ and sister bank National Bank have today (28 February) raised fixed mortgage rates and, as this is the largest banking group in the country, it seems inevitable that competitors will follow. The largest banks had been undercutting some of their non-bank competitors on five-year rates recently, but ANZ National has raised fixed rates across all terms. Sources in the non-bank lending sector say that the banks had been subsidising the cost of longer-term money as a marketing ploy and that the higher rates being charged elsewhere are a true reflection of the cost of finance over these terms.
Economists say that the rising cost of finance in the wholesale markets reflects a hardening of views on the outlook for inflation, and thus interest rates, in world economies. Westpac economists still think there is a chance that New Zealand's OCR will rise again, but that an increase may be delayed until the end of this year.
It would be a brave borrower who took a floating rate loan now in the hope that there will be substantially cheaper fixed rate money available soon. Rates have stayed high for much longer than expected and there may be more pain to come. Two-year rates look to be the least risky commitment at present but borrowers with larger debts should continue to diversify their rates and terms, as many do already.
Borrowers should also be aware that lenders' advertised loan rates are only part of the story in this market; lenders may be willing to negotiate. Mortgage brokers say that the slowdown in lending prompted by the cooling in the housing market is encouraging lenders to compete aggressively for business.