Reserve Bank proposals could force $2 billion mortgage hike: UBS

Swiss investment giant UBS has taken aim at the proposals in a highly critical note. It believes New Zealand borrowers could be hit with rate hikes due to the costs associated with the new proposals, which were first mooted by the central bank last month. UBS believes banks will pass on the cost to home loan customers.

UBS estimates Kiwis could have to pay up to $2.7 billion more on their home loans each year to fund the capital requirements. It believes the rules could see rates jump by 80-125 basis points.

RBNZ, led by governor Adrian Orr (pictured), wants banks to keep an extra 20% to 60% on their balance sheets to guard against risk in the financial system. The capital rules, if implemented, would be the highest bank capital ratios in the developed world, UBS says.

UBS says it disagrees with the RBNZ conclusion that proposals "will only have a minor impact on borrowing rates for customers". UBS analysts believe New Zealand banks will "need to reprice their NZ mortgage book by [about] 80 basis points to about 125 basis points" to achieve the same return on equity.