BNZ hikes Total Money variable mortgage rate to 5.74% from 5.59%, but cuts 6 mth to 2 yr fixed mortgage rates

BNZ has raised its Total Money variable mortgage rate by 0.15% to 5.74% from 5.59%.

At the same time, it has cut its Classic one year fixed mortgage rate by 0.10% to 5.75% from 5.85% and its Classic 18 month rate by the same amount to 5.89%. It has left its 30 month Classic rate unchanged at 6.10%

It also cut  its Standard, Flybuys, and GlobalPlus fixed mortgage rates.

The six month fixed rate reduced by 0.05% to 5.75% from 5.80%. The one year fixed rate has been cut by 0.25% to 5.85% from 6.10%, and the two year fixed rate has been cut by 0.21% to 5.89% from 6.10%.

These changes remove the substantial rate advantage BNZ's Total Money variable had over other major banks offerings for floating rates, and positions the Total Money vaiable rate at a very similar level to its competitors.

Kiwibank's Offset Mortgage variable rate of 5.50% remains the lowest available from a bank, followed by Westpac's 5.60% Choices Everyday.

All up-to-date mortgage rates are here »

Back on October 28 Gareth Vaughan reported BNZ CEO Andrew Thorburn saying banks were likely to to hike floating mortgage rates even if the Reserve Bank left the Official Cash Rate at 2.5% because bank funding costs were likely to be driven higher by turmoil on international financial markets.

New Zealand's banks still obtain 14% of their funding from 'hot' offshore money markets. These markets are in turmoil in Europe because of the sovereign debt crisis.

But as Gareth reported back then:

Nonetheless banks hiking their floating rates against a backdrop of a 2.5% OCR would likely see them come under criticism.

In Australia a year ago the Ralph Norris led ASB parent Commonwealth Bank of Australia (CBA) came under sustained fire from politicians, the media and the public after lifting home loan rates by 45 basis points on the back of a 25 basis points hike to the cash rate by the Reserve Bank of Australia. And a year earlier Westpac, CBA and ANZ did the same with Australian Treasurer Wayne Swan saying they had no justification to do so.

The Reserve Bank is now expected to hold the OCR until the end of next year. BNZ and ASB extended their forecasts any OCR hike to the end of 2012 from mid-2012 earlier this week and NZIER said this morning it expected the RBNZ would hold until early 2013.

Also, Reserve Bank figures show New Zealand retail bank net interest margins have risen from 1.85% to 2.37% in the two years to October and rose from 2.31% to 2.37% between September and October.

BNZ's net interest margin increased by 14 basis points to 2.30% over the year to September, and by 11 basis points to 2.35% in the second half-year as customers switched to floating mortgages from fixed-term ones and loans were "repriced" to fit market conditions. Chief financial officer Ken Christie said in late October nearly all customers taking on home loans were currently choosing to float with 60% of the bank's home loans now on floating rates, which is slightly above the overall industry figure of 56%.

Banks tend to do better out of floating, or variable, mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between swap rates and fixed rate mortgages.

Back on November 7 Gareth Vaughan argued customers should haggle with their banks because bank profits were at record highs and net interest margins were rising, contrary to comments by banks that their funding costs were rising.

Back on November 6 Bernard Hickey argued New Zealand's banks were amazingly profitable and were increasing their net interest margins as customers moved to floating from fixed mortgages. He argued this gave them room to absorb any increase in funding costs through accepting lower profits.

Wholesale interest rates (see swaps chart below) are near record lows and have fallen 50 basis points in the last six months as fears about the European crisis hitting the global economy have dragged down expectations for economic growth and inflation.

(Updated with backgrounds, links, chart)