Bank rate rises start after OCR lift
ANZ is the first bank to lift its floating mortgage rates, just hours after the Reserve Bank increased the official rate earlier this morning.
This morning the Reserve Bank lifted official interest rates from 2.5 per cent to 2.75 per cent, kicking off the first of what is expected to be a long run of increases over the next two years.
ANZ has responded by passing the full 25 basis point rise on to its floating and flexible home loan customers, to 5.99 per cent and 6.10 per cent respectively.
The rates take effect on March 17 for new floating mortgages, and April 1 for new flexible rate loans and all existing borrowers.
The country's biggest bank also increased the interest rate earned by savers on its main deposit product, Serious Saver, by 25 basis points.
ANZ managing director of retail and business banking, Fred Ohlsson, said more than five times as many customers would benefit from the increased interest rates.
Other banks are likely to follow suit.
Floating mortgage rates have hovered around 5.75 per cent for more than three years, but could rise to about 8 per cent by the end of 2016.
With the majority of mortgage customers on either floating or short-term fixed rates, the adjustments will not take long to hit borrowers in the pocket.
Bank of New Zealand chief economist Tony Alexander said it would be "extremely rare" for a change in official rates not to be followed by a change in floating mortgage rates.
However, he said the length of time before banks updated their pricing was unpredictable.
"Sometimes the people in marketing departments decide, we'll wait and be the last," Alexander said.
"If every bank's thinking that way, it can take a while."
While the Reserve Bank's decision has a direct impact on floating rates, the fixed rate market has already priced in the increases, which were signalled well in advance.
David Kneebone, executive director of the Commission for Financial Literacy and Retirement Income, said it might pay to start preparing for the higher rates now.
''Because mortgages involve repaying a lot of money over a lot of time, even slight increases in mortgage rates can add up to tens of thousands of dollars in the long haul,'' he said.
Sorted's mortgage repayment calculator shows even an increase of 0.25 per cent on a 20 year $500,000 mortgage increases weekly repayments by $16.
A longer-term 2 percentage point rise in rates could add $28 a week for every $100,000 of debt, or close to $1500 a year.
That means a borrower with a $500,000 mortgage would need to budget an extra $7500 for repayments each year.
However, Kneebone pointed out that higher interest rates were also good news for savers, especially those who rely on interest income to live, like retirees.
Banks calculate a safety buffer for higher interest rates when deciding how much to let customers borrow, though the exact criteria used are closely guarded.
New Zealand Bankers Association chief executive Kirk Hope said now is a good time for borrowers to reassess their circumstances.
''This is especially important for first-home owners who have borrowed at historically low rates,'' he said.
Hope advised customers to talk to their bank about their own particular circumstances.
Preparing for pain