SBS raises 1 and 2 year mortgage rates

SBS raises 1 and 2 year mortgage rates

SBS Bank has raised its one year mortgage rate from 6.25% to 6.35%, and its two year rate from 7.25% to 7.30%. The move follows Westpac, which raised its one year rate to 6.29% earlier in the week. See and compare all mortgage rates here.

The average bank 1 year mortgage rate has risen from 5.6% in July to around 6.25% as banks lift their fixed mortgage rates to match their higher funding costs. They are competing hard to raise deposits locally by increasing term deposit rates well above the record low Official Cash Rate (OCR) at 2.5% and are also having to pay more for scarcer funds on international wholesale markets. This is delivering a de-facto tightening in monetary policy despite the Reserve Bank leaving the OCR on hold since April last year. It is also helping to take any steam out of the housing market that built up from March 2009 when interest rates hit record lows. The "˜yield curve' has changed dramatically in the last year as variable rates have increasingly become cheaper than fixed rates, reversing the situation seen for 8 years where fixed rates were cheaper than variable rates. This is encouraging many home buyers to opt for variable rates, which will also strengthen the potency of monetary policy when the Reserve Bank does decide to hike the OCR. The central bank repeated on January 28 it would look to hike from the "middle of 2010"³. The proportion of mortgages that are variable has doubled to 26% since hitting a low of 12.5% in August 2007.

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