No time lost in lifting mortgage rates

Mortgage rates are heading up as expected, with ANZ the first bank to pass on the latest official interest rate increase in full.

However, homeowners should be able to relax until the end of the year as the Reserve Bank ponders its next move.

This morning the central bank raised the official cash rate (OCR) to 3.5 per cent, but signalled a pause in its cycle of increases.

Economists expect the reprieve to last until December or possibly into next year, as the Reserve Bank waits to see what impact its earlier rate moves have had.

Once again ANZ was the first to move, increasing its floating home loan prices by the full 25 basis points within an hour of the announcement.

Head of mortgages Sarah Berry said it would be sensible for anyone with a home loan to make sure their budget was planned so they could comfortably manage further increases.

Today's increase is the fourth this year, and brings both the OCR and floating mortgage rates rise up by a full percentage point since March.

For someone with a 30-year mortgage, the changes have added an extra $65 to monthly repayments on every $100,000 of debt.

New Zealanders collectively owe $64 billion worth of floating mortgage debt, although that figure is reducing rapidly as more people move to fixed loans.

ANZ chief economist Cameron Bagrie said floating mortgage rates, which are closely tied to the OCR, would probably move up after this morning's announcement.

In the longer-term, Bagrie said the central bank was still biased to moving rates upward but was now ''stopping for a cup of tea''.

Bank of New Zealand chief economist Tony Alexander said floating mortgage rates would inevitably rise, but probably then remain steady for the rest of the year.

While the central bank's next move would depend on economic data, Alexander said he still expected an increase towards so-called neutral interest rates in the longer-term.

''At this stage we don't see any reason to alter our expectation that eventually the cash rate ends up at 5 per cent,'' he said.

If floating mortgage rates moved in lock-step with the OCR, that would imply rates of 8 per cent or more.
However, some banks have already started holding back from passing on the increases in full.

Westpac has taken the boldest stand, holding its floating rate one step lower than its major rivals at 6.24 per cent.

That compares to Kiwibank's 6.4 per cent, ANZ and BNZ's 6.49 per cent, and ASB's 6.5 per cent.

Fixed mortgage rates are not as closely tied to the OCR, as the market already prices in most of the changes in advance.

The wholesale ''swap rates'' that underpin fixed home loans have eased slightly over the last two weeks.

The silver lining of higher interest rates is that savers are earning more on their investments.

ANZ has this morning introduced a new term deposit special of 4.4 per cent for 8 months.

The bank has previously pointed out that more than five times as many of its customers have savings products than have floating home loans.