Fixed-term mortgage rates hiked

RICHARD MEADOWS
Last updated 10:20 25/07/2013

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Fixed-term mortgages have become more expensive across the board, as markets anticipated the first clear signal that official interest rates are set to rise.

This morning Reserve Bank governor Graeme Wheeler announced the official cash rate (OCR) would remain at its historic low of 2.5 per cent, as was widely expected.

The OCR is closely tied to floating mortgage rates, which have been gathering dust around the 5.75 per cent mark for two years.

However, longer-term fixed mortgage prices are based largely on the price of funding in international money markets which has been rising for months.

The banks' latest flurry of activity started a month ago when Westpac and Kiwibank hiked a couple of their rates

At the time, Westpac warned that the good times could be coming to an end.

Since then every major bank has increased its term interest rates, often in every category from one to five years.

Westpac chief economist Dominick Stephens said today's written statement was the first time since December 2011 that the central bank had clearly indicated that the next move was up.

He said markets had already anticipated the change in stance, hence the upward creep over the last month.

Commentators have regularly suggested that people who remained on floating rates could risk missing the boat if interest rates rose.

"I've felt that fixing was the better option for some time - probably for more than a year now," Stephens said.

"Many fixed rates still remain below floating rates. The only way to lose on that deal is if the RBNZ cuts the OCR, and today makes that even less likely."

Reserve Bank statistics show that while fixed rates have officially overtaken floating in popularity, the vast majority are in short terms of one year or less. Few people have opted to fix over the longer three to five year terms, which would provide real insurance against rising rates.

The time line for the forecast rate hike has been pushed back several times, but the general consensus is around March next year.

Smaller banks, which access most or all of their money locally, are leading the market with the sharpest prices in almost every bracket (see table).

Sister banks SBS and HBS are well ahead of the pack, with four of the cheapest mortgage rates on offer.

"It's not always possible, but we've always endeavoured to undercut the market," SBS chief executive Ross Smith said, adding SBS was not directly influenced by the recent movements in wholesale markets, because it did not fund from them.

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But the changes would filter through in time, he said.

Here are the cheapest mortgage rates offered in the main borrowing categories:

Floating:

5.65 per cent - Kiwibank, SBS/HBS

5.70 per cent - The Co-operative Bank

One year:

4.88 per cent - TSB (with conditions)

4.89 per cent - Kiwibank

Two years:

5.25 per cent - SBS/HBS

5.50 per cent - Kiwibank, the Co-operative Bank, TSB

Three years:

5.65 per cent - SBS/HBS

5.89 per cent - BNZ

Four years:

6.15 per cent - The Co-operative Bank

6.30 per cent - All major banks

Five years:

5.99 per cent - SBS/HBS

6.60 per cent - All major banks

Source: Good Returns

- BusinessDay.co.nz

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