What triggers home loan rate changes?

New Zealand and Australia have much in common, not least that our “big four” banks are owned by Australia's “big four,” but there are also major differences between the two countries, particularly between their two mortgage markets.

In Australia, where the vast majority of mortgages have always been at floating rates, every time the Reserve Bank of Australia (RBA) moves its cash rate, the banks have always moved within minutes to reflect the extent of each move in their floating rates; until recently, that is.

Not surprisingly, when such a long-term tradition is broken, that's been making headlines across the Tasman. The key factor which has changed is that bank funding costs have risen sharply and are no longer closely tied to the RBA's cash rate.

While bank funding costs have also risn on this side of the ditch, here there's never been such a lockstep relationship between the official cash rate (OCR) and banks' floating mortgage rates.