Home loan rates rise in rush to fix

Fixed mortgage rates have been driven higher this week, largely because of a stampede of homebuyers convinced recent low levels were soon to rise, industry figures say.

But the cost of the 30 to 40 per cent of the funding banks raise overseas is also adding to the pressure.

ANZ National, New Zealand's largest bank, yesterday raised fixed rates for the second time in less than a week, lifting its two-year rate by 0.6 percentage points to 6.75 per cent and its five-year rate by 0.75 percentage points to 7.5 per cent.

On top of increases on Monday, the two rates have gone up 0.76 percentage points and 1 percentage point respectively in five days.

ANZ National's rivals have also increased fixed rates in recent days.

Only a couple of weeks ago, many commentators including bank economists were predicting longer-term rates would remain low.

"It's a challenge in terms of the outlook for homeowners or potential borrowers who were looking to lock in a long-term rate," said BNZ's general manager of strategy and marketing, Blair Vernon.

"Ourselves and the entire market wouldn't have been predicting that kind of speed of ascent. I think it's caught us all by surprise.

"Continuing volatility in the offshore markets has caused costs for long-term funds to rapidly rise," he said.

But a jump in demand for fixed rates, driving rates on the wholesale "swap" market higher, was a significant factor in the latest rate increases.

That was down to "some of the positioning and interpretation" around the Reserve Bank's half a percentage point cut in the official cash rate two weeks ago.

A lot of homebuyers had switched from fixed to cheaper floating or six-month fixed rates in recent months and had been waiting for rates to bottom out before refixing.

Mr Vernon said the number of BNZ customers on floating rate loans was until recently more than double what it was a year earlier.

"That's accelerated aggressively from November last year."

Until about two weeks ago, BNZ was writing virtually no new five- and seven-year loans.

But since then, about half the mortgage loans it was writing were for those terms.

"The problem is people may be taking the interpretation from the official cash rate, not from the announcement itself but some of the commentary, that maybe we weren't going to see any more cuts. That's created some early pressure on the coverage of those longer rates."

AMP Capital Investors fixed interest specialist Grant Hassell agreed, saying there was was an element of desperation in the rush to fix mortgages at present.

"Imagine you're someone who's just paid out $25,000 to break your fixed-rate mortgage to benefit from floating rates and some commentator says it's time to fix your mortgage. You're going to go straight back to the bank and fix it."

But there was "every opportunity" for fixed rates to come back down if the rush to refix abated.

Meanwhile, ANZ National Bank yesterday said it had raised US$1 billion ($1.75 billion) in overseas money, using the Government's wholesale funding guarantee for the first time overseas.

But ANZ National indicated it was paying just over 7 per cent for the three-year cash, which is more than it now charges for three-year fixed rate mortgages.