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Banks start to move interest rates

Wednesday, December 10th 2003, 6:26AM

by Jenny Ruth

The Reserve Bank may have stayed its hand last week, leaving its Official Cash Rate (OCR) unchanged at 5%, but wholesale interest rate markets have had other ideas and already lenders are responding by raising their floating mortgage rates.

Westpac led the way back on 11 November in what one observer calls a "risky" move.

With 90-day bank bills, from which the banks finance their floating rates, topping 5.4% back then, Westpac raised its floating rate from 7.1% to 7.25%. As a rule of thumb, banks try to keep their floating rates between 1.75 and 2 percentage points above the 90-day bank bill rate to preserve their profit margins.

All the other lenders sat on their hands until they knew the central bank’s decision last week.

Even though the 90-day bank bills fell below 5.3% after the Reserve Bank failed to raise the OCR, giving the banks even more reason to do nothing, on Monday, Bank of New Zealand decided to lift its floating rate from 7.1% to 7.25%. ASB Bank confirmed this is the way things are heading on Tuesday by lifting its floating rate from 7.05% to 7.25%.

Head of retail banking Barbara Chapman says that even though the 90-day bank bill rate blipped down a bit after the central bank’s decision, the trend towards rising interest rates is still evident.

The Reserve Bank’s forecasts have the 90-day bank bills reaching 5.75% by mid-2004, implying that floating mortgage rates will be about 7.75% by then.

"There has been quite a significant change in the 90-day rate since August," Chapman says. Demonstrating that, ASB is now paying 0.55% more in interest on six-months fixed term deposits, she says.

"We do think the time is right, even though it’s a big decision for us to do it."

BNZ chief economist Tony Alexander says his bank considered raising its floating rates three weeks ago but decided to hold off until it knew the Reserve Bank’s decision. When BNZ set its floating rate at 7.1%, the 90-day bills were trading at about 5.1%.

Brendan O’Donovan, chief economist at Westpac, says that following the central bank’s endorsement of wholesale market pricing back in October, the market had been pricing in further rate increases when his bank made its decision. "If the markets told it’s got it right, it tends to want to push it further. With the forward pricing in the market, the targeted (profit) margin was getting squeezed."

Even though the Reserve Bank didn’t move this month, its forecasts for next year still justify Westpac’s move, O’Donovan says.

By Tuesday night, National Bank hadn’t moved its floating rate from 7.05%, and wasn’t commenting on what it might do, while ANZ Bank also hadn’t moved from its 7.1% floating rate.

The other banks rejected suggestions they might have chosen to hold off raising their floating rates in order to attract the business of disgruntled National Bank customers following its takeover by ANZ.

Alexander says the BNZ has never tried to "take advantage of restructuring in the banking sector," while Chapman says National customers wanting to change to another bank will probably be looking for fixed-rate home loans.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 ▼7.84 ▼7.39 ▼7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - ▼7.24 ▼6.79 ▼6.65
ASB Bank 8.64 ▼7.29 ▼6.85 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.29 6.85 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.89 7.45 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

Last updated: 4 March 2024 9:31am

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