Fixed mortgage rates on the rise again

Kiwibank confirms further increases on Monday

Fixed mortgage rates on the rise again

The hiking of fixed home loan rates continues this month with Kiwibank announcing a fresh round of increases, effective from Monday.

Main bank 1-year fixed rates are currently priced from 7.35%, while 2-year fixed mortgage rates are priced from 7.05%.

Each of the five main banks have increased fixed rates over the last two months, Kiwibank last announcing increases to fixed home loan rates effective October 18.  BNZ and ANZ announced increases to fixed rates effective from October 25, BNZ announcing further increases to 1-year, 18-month and 2-year mortgage rates on November 15.

In an email update released on Monday, Kiwibank confirmed that effective November 20, its 6-month fixed and 1-year fixed special home loan rates had increased from 7.25% to 7.39% and 7.35% respectively. The bank’s standard rates (borrowing less than 80% LVR) on the same fixed rate terms have increased from 8.25% to 8.39% and 8.35%.

Kiwibank also confirmed that its 2-year fixed rate had increased from 7.05% to 8.05%, it’s 3-year rate from 6.89% to 7.79%, its 4-year rate from 6.79% to 7.69%, and its 5-year rate from 6.79% to 7.69%.  The bank’s variable/offset and revolving credit rates remained unchanged at 8.50% and 8.55%.

Confirming that the rate increases were effective for new and existing customers from November 20, a Kiwibank spokesperson said that bank regularly reviews its interest rates to ensure they are competitive and reflect current market conditions.  While the official cash rate had not moved since April, the cost of funds has increased, the spokesperson said.

"We would invite any of our customers who are worried to get in touch with us to discuss their circumstances and how we can help with their finances as soon as possible," the Kiwibank spokesperson said.

Wholesale markets change direction

Commenting on funding costs generally, Kiwibank chief economist Jarrod Kerr (pictured immediately below) told NZ Adviser that following recent pressures on wholesale funding costs, more recently, wholesale markets had “started to move the other way”.

“Just in the last few weeks, we’ve seen rates drop quite substantially in wholesale markets…if they hold, I would expect retail rates to start moving south,” he said.

Kerr said that term deposit rates were currently sitting at 6.15% per annum (slightly higher elsewhere). This represents around 60% to 70% of bank funding, which is still elevated, he said. Kerr also noted that as a growing bank, Kiwibank needed to fund the lending it wanted to provide, offering competitive term deposit rates to "attract money in the door".

Signs mortgage rates will recede in 2024

Kerr said that financial markets had moved from pricing in a further rise to the official cash rate early next year, to pricing in two rate cuts in 2024.

“If financial markets are right and this does come about, then the wholesale market could fall a little further and I think we’ll start seeing retail rates going the other way,” Kerr said.

Kiwibank continues to forecast that at 5.50%, the official cash rate has peaked. Kerr said that he anticipated that mortgage rates would move lower next year but said that the exact timing would depend on incoming data. He noted that the rate of inflation, currently 5.6%, would need to be at or below 3% before the RBNZ would likely be comfortable in cutting the wholesale rate.

“Our forecast has inflation getting to 3% by the middle of next year, so we’re thinking May at the earliest, but probably the middle of 2024 for the first rate cut to occur,” Kerr said.

Canstar New Zealand said on Monday that according to its database, the lowest 1-year and 2-year fixed rates were available through Heartland Bank, at 6.99% and 6.85% respectively. 

The Reserve Bank is due to announce its next Monetary Policy Statement on November 29.

Are recent rises in fixed mortgage rates a concern for borrowers? Share your thoughts in the comments section below.