ASB cuts mortgage rates

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Competition among banks in the home loan market looks set to continue, with ASB announcing changes to its key fixed mortgage rates this morning.

The bank has reduced to its three, four and five-year fixed home loan rates by 0.15 per cent, while lifting its two-year rate by 0.20 per cent.

Its five-year fixed rate has been cut to 6.25 per cent, its four-year rate to 5.95 per cent, and its three-year rate to 5.75 per cent.

"Our special two-year fixed home loan interest rate of 5.25 per cent has come to an end, and the two-year term is now aligned this with the 12 and 18-month fixed home loan interest rate of 5.45 per cent," said spokesperson Shaun Drylie.

Looking at other banks' two-year rates, ANZ is offering 5.39 per cent, BNZ 5.65 per cent, Westpac 5.40 per cent, Kiwibank 5.25 per cent, and Heartland 6.5 per cent.

Reserve Bank data out last week showed mortgage approvals reached their highest levels in almost four years last month.

The volume of weekly mortgage approvals hit a 3-year high (8300) in the week to December 21.

The Reserve Bank also said a total of 916,142 floating mortgages were recorded, paying an average 5.79 per cent interest. Floating mortgage interest rates are currently at near 50-year lows, with ANZ offering 5.74 per cent, ASB 5.75 per cent, and Kiwibank 5.65 per cent.

House prices last month also rose, up to a record median price of $389,000. That was 9.6 per cent higher than a year before, according to figures from the Real Estate Institute.

The Auckland median price was up 10.5 per cent to $535,000.

Last week, Statistics New Zealand said New Zealand's consumers price index (CPI) fell 0.2 per cent in the December 2012 quarter, which was below expectations.

With the annual inflation rate now at only 0.9 per cent, most economist are predicting the Reserve Bank will not alter the Official Cash Rate from 2.5 per cent until next year.

With below-target inflation but booming house prices, the Reserve Bank faces the dilemma of whether to raise or cut interest the OCR.

ASB economist Daniel Smith said given slower momentum in GDP growth, weaker inflation pressures and the high dollar, he expects the Reserve Bank will wait until March 2014 to lift the OCR.

"However, one risk in the Reserve Bank waiting until then is the evident heating up in parts of the housing market and acceleration in credit growth," he said.

"Both of these factors are likely to cause increasing concern for the Reserve Bank, and earlier OCR increases are still possible."

The next OCR announcement is due next Thursday January 31.