Borrowers may accordingly be more inclined to fix at least parts of their mortgages at longer durations – the types of mortgages ANZ is making more expensive.
ANZ strategist David Croy last Friday told the Herald borrowers might be wise to fix their mortgages at a range of durations, as there’s a chance inflation, and therefore interest rates, won’t fall as quickly as expected.
RBNZ data suggests borrowers have in recent months been wary of this risk. While fixing for a year was the most common option in June, three-year mortgages became more popular.
ASB is using a similar strategy to ANZ, focusing its hikes on longer-dated mortgages.
On Monday, it announced it would lift its two-year rate by 10 points and its six-month, three-year, four-year and five-year rates by 20 points.
ASB’s two-year rate is now at 6.89 per cent – below ANZ’s special two-year rate of 6.99 per cent and its standard rate of 7.59 per cent.
Meanwhile, ASB’s three-year rate is at 6.69 per cent – on par with ANZ’s special but below its standard rate of 7.29 per cent.
ASB executive general manager of personal banking, Adam Boyd, explained there’s been a rise, over the past two and a half years, in all the factors that influence home loan rates – the OCR, swap rates, customer term deposit rates and the cost of overseas funding.
“We have not increased our fixed home loan rates in line with these increases, and continuing to write home loans for customers below the cost of capital is not sustainable,” Boyd said.
ASB’s net profit after tax reached a new record high of $1.6 billion in the year to June, rising by 6 per cent from the previous year.
While its net interest margin was very healthy at 2.44 per cent, the state of its books started deteriorating in the second half of the year.
Both ASB and ANZ also raised term deposit rates.
ASB lifted its six-month term deposit rate by 10 points, its nine-month rate by 15 points and its one-year rate by five points.
Meanwhile, ANZ is hiking its 180-day to two-year deposit rates by between five and 30 points, with its 18-month rate hitting 6 per cent.
“When reviewing interest rates we consider a range of factors, including the impact on customers, the underlying cost of funds (including wholesale rate movements) and competitor activity,” an ANZ spokesperson said.
When the Reserve Bank reviewed the OCR last week, it kept the rate on hold at 5.5 per cent.
It suggested there was a slight chance it could lift the OCR again, and said it expected to cut the rate in early-2025 rather than late-2024, as projected in May.
When the Herald asked Governor Adrian Orr whether he was comfortable with the extent to which banks had been raising their mortgages rate (while the OCR was on hold), he noted banks had been responding to rising wholesale funding costs.
“So their cost of funding has been rising and they are busy passing that on to those who are borrowing,” Orr said.
He recognised credit growth had been very slow, consistent with tight conditions.
“So it’s a normal market behaviour,” Orr said.
“Our expectation, over the period ahead, is that bank margins will come under narrowing pressure given that higher cost of funding, more competition going on as the market gets thin for loans.”
Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
