KEY POINTS:
The US credit crunch has finally hit New Zealand home-buyers directly in the form of rising mortgage rates.
Westpac yesterday raised its fixed rate mortgages by 20 points, taking its two-year fixed rate from 9.4 per cent to 9.6 per cent.
The increase matches moves by New Zealand's
largest bank, ANZ National, within the last week.
The other two major banks, BNZ and ASB, say their rates are under review.
Mortgage rates are usually driven by the Reserve Bank's official cash rate, which sets the benchmark for local banks.
But the latest rises are being driven by tighter world lending conditions, caused by weaknesses in the American economy.
The increase is expected to affect many home owners, as about 30 per cent of all fixed-rate mortgages - representing a quarter of all mortgage debt - finish over the next 12 months.
Most of those are likely to be on two-year terms, set when rates were around 8 per cent.
The latest increases, on top of previous rises, mean such households face a 1.6 percentage point rise in interest costs.
This would add almost $60 a week to payments on a $250,000 mortgage.
Floating mortgage rates have remained steady in recent weeks.
ANZ National and Westpac blamed their fixed-rate increases on a tightening of lending criteria after the collapse of the US sub-prime housing market - which lends to Americans with poor credit records - and its effect on the US and world economy.
Australia's big four banks - which own New Zealand's main banks - have previously said they have little direct exposure to the sub-prime crisis.
But this week it emerged that they have a combined A$850 million exposure to stricken American home lender Countrywide.
ANZ National this week said its increases were the result of wholesale rates rising because of the effect of the US sub-prime housing market on international liquidity and money markets.
Westpac spokesman Craig Dowling said the increases were "a response to margin pressure as a result of current volatility in wholesale funding".
The Bank of New Zealand's strategy and marketing chief, Blair Vernon, said rates were "under review".
"Funding costs have been increasing but this remains a fiercely competitive market.
"We will balance any decisions in the coming weeks against those factors."
An ASB Bank spokeswoman said the bank was "continually reviewing" rates.
Meanwhile, TSB Bank raised its two-year rate this week by 10 basis points to 9.39 per cent.
TSB chief executive Kevin Remmington said the move was made in response to the ANZ's increase.
"We could see there was a move of 20 points by some of the major banks and therefore it was going to affect the market generally.
"So we did a move with our two-year special by half that."
Kiwibank chief executive Sam Knowles said his bank had no immediate plans for increases.
"We're quite comfortable where we are, but it's a quiet time in the market anyway.
"Once the market starts moving again, we'll have a look at it then."
