Mortgage holders are rushing in to fix their loan rates as banks hike rates ahead of the expected rise in the official cash rate next year.
Westpac yesterday became the latest bank to can its specials and lift its fixed interest rates. It follows ANZ Bank's move on Tuesday.
Both Westpac and ANZ increased rates by between 9 basis points and 34 basis points with the biggest rise hitting two-year fixed mortgage rates.
Westpac increased its two-year rate to 6.29 per cent for those with at least 20 per cent equity and 6.89 per cent for those with less than 20 per cent equity.
ANZ boosted its two-year fixed rate from 5.95 to 6.29 per cent for standard borrowers and from 6.45 to 6.79 for low equity borrowers.
Ian Blair, head of retail at Westpac said the bank's decision had been driven by increases in the swap rate - the rate at which banks lend to each other on the international market.
Blair said the two-year swap rate had jumped 25 basis points in the last month alone.
"That is a big move. It has been ticking up for a year."
Westpac had sucked up the increases until now but it had got to a level where that was unsustainable.
ANZ also blamed its rate rise on increased costs.
"The rising cost of funding [both customer funding through term deposits and wholesale funding] is increasing, and therefore we must increase our home-loan interest rates to pass on this increased cost of funding," a spokesman for the company said.
ANZ said home buyers had benefited from a period of stable and historically low interest rates over the last three years.
But global and New Zealand economic conditions that influence the level of interest set by banks were constantly changing. Blair said demand for fixed rates had strengthened in recent months with a number of banks offering specials to entice people to fix.
"We are certainly seeing demand for fixed rates strengthen. The message is really getting through that rates will go up in 2014."
Last week the Reserve Bank kept the official cash rate at 2.5 per cent but warned the rate would rise next year.
Blair said rising rates was also turning around a trend which had seen people move into more floating mortgage rates.
Historically around 70 per cent of mortgage holders had their loans on fixed rates versus around 30 per cent on floating. That turned on its head during the global financial crisis when interest rates hit all-time lows.
But Blair said it had flipped back to more historic trends in recent months.
Banks typically follow each other in raising rates. Asked if they planned to lift rates both BNZ and ASB said their rates were under constant review.
BNZ currently charges 5.95 per cent for its standard two-year fixed rate for those with over 20 per cent equity and 6.45 per cent for low-equity borrowers.
ASB also charges 5.95 per cent for a standard two-years fixed mortgage but currently has a conditional rate of 5.59 per cent for two years.