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Rising bank funding costs to put upward pressure on mortgage rates: RBNZ

The Reserve Bank expects that rising bank funding costs will keep putting upward pressure on mortgage rates, even as swap rates in the wholesale market start to fall.

Thursday, February 29th 2024, 7:11AM

The central bank's latest monetary policy statement (MPS) noted that mortgage rates have dipped slightly for most fixed terms and that rates offered on term deposits longer than six months have also declined.

“The margin between mortgage rates and wholesale interest rates is expected to return to more historically normal level as competition for term deposits continues and funding conditions for banks continue to tighten,” the MPS said.

“This is expected to see mortgage rates hold up relative to wholesale interest rates.”

RBNZ noted that wholesale interest rates have been volatile in recent months with rates of up to two years increasing compared to immediately before its last MPS in November last year, but that rates for terms longer than two years have fallen.

“The broad upward trend in spreads since the end of 2022 is likely to continue over the next few years,” it said.

“This is because increases in banks' cost of funding will likely continue to place upward pressure on mortgage rates in the years ahead, even in an environment of falling swap rates.

RBNZ expects the lagged impact of monetary policy tightening – it raised the official cash rate (OCR) from 0.25% to 5.5% between October 2021 and May 2023 – will continue to constrain the scale and speed of the housing market recovery, despite the ongoing additional demand coming from record net immigration.

“We project slower house price growth in 2024 following weaker price momentum in late 2023,” the central bank said.

“Mortgage rates have fallen by less than wholesale rates, causing a faster normalisation in mortgage rate spreads than previously assumed. We assume that house prices grow at a similar pace to that in the November statement over the medium term at around 6% per year,” it said.

“The reflects the lagged impact of high net immigration and lower interest rates later in the projection horizon.”

But the combination of declining investment in residential property, still restrictive interest rates and high net immigration mean heightened uncertainty about house prices.

RBNZ is projecting the OCR will remain at at least 5.5% through to the second quarter of 2025 at the earliest but that the OCR will be cut twice in 2025.

It expects household consumption will have declined by 3.5% in the year ending March this year but that it will recover gradually by mid-year.

RBNZ said the changes in government tax policy, including the return of interest deductibility of mortgage interest and returning the “bright line” test to two years from 10 years will put upward pressure on house prices because of increased demand from investors, but the impact will be “relatively small.”

Tags: OCR

« RBNZ holds OCR at 5.5%; no cuts until mid-2025Westpac loaded up on home loans in the Dec Qtr after a quiet period »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
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 - 7.14 6.79 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 7.74 7.39 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 - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
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 6.89 6.55 6.35
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 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 12 June 2024 4:04pm

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