Westpac New Zealand has increased its 1 year mortgage rate to 6.29% from 6.20% and has raised its 'capped' 1 year rate to 6.55% from 6.20%. (Update 1 includes SCBS rate hikes.) This lifts Westpac's standard 1 year rate above ANZ on 6.20%, above National on 6.15%, above Kiwibank on 6.25%, and above BNZ on 6.25%, but it remains below ASB on 6.55%. Meanwhile, Southern Cross Building Society (SCBS) hiked its one and two year mortgage rates by 20 basis points to 6.10% and 7.10%, respectively. See all mortgage rates here. The average bank 1 year mortgage rate has risen from 5.6% in July to 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". The proportion of mortgages that are variable has doubled to 26% since hitting a low of 12.5% in August 2007.