ASB the 4th bank to hike fixed home loan rates in the past week, suggesting to borrowers that low rates may have bottomed and have started moving up

ASB the 4th bank to hike fixed home loan rates in the past week, suggesting to borrowers that low rates may have bottomed and have started moving up

ASB has today (Thursday) raised its fixed home loan 'special' interest rates.

Its one year rate has been raised by +4 basis points to 4.29%.

Its 18 month fixed rate has been also been raised by the same amount.

Its two year fixed rate is up +5 bps to 4.34%.

And its three year fixed rate is also up by +5 bps, now at 4.39%.

These new rates will become effective at 8am, Friday, October 7 11.

The new rates only affect their mortgage 'specials', and they also apply to home loans offered by their BankDirect brand. Expect a similar move from Sovereign, and possibly by NZ Home Loans.

These new ASB rates leave it relatively competitive for a three year term (although rival Kiwibank has a lower rate), but leave it exposed somewhat against ANZ who dominate this market.

This rise follows a very similar rate announcement from The Co-operative Bank late on Tuesday. The Co-operative Bank were clear their move had a lot to do with "elevated" term deposit rates and competition in that segment.

Wholesale swap rates have been rising over the past four or five days, driven higher by moves in benchmark rates on Wall Street. Local swap rates have risen again today.

On October 1, there was a major transition in US credit sources with many money market funds removing themselves from offering foreign banks funding lines following a key regulatory change. This is also affecting the cost of credit, and may have had a role to play in the ASB decision.

See all banks' carded, or advertised, home loan rates here.

below 80% LVR 6 mths  1 yr  18 mth  2 yrs   3 yrs   5 yrs 
  % % % % % %
4.99 4.25 4.89 4.29 4.99 5.30
ASB 4.75 4.29 4.29 4.34 4.39 4.79
4.99 4.29 4.99 4.39 4.49 5.15
Kiwibank 4.75 4.24   4.24 4.34 4.99
Westpac 5.15 4.25 4.95 4.29 4.49 4.89
             
4.65 4.39 4.45 4.45 4.59 4.99
HSBC 4.85 4.19 4.19 3.79 4.49 4.99
HSBC 4.50 4.25 4.15 4.15 4.55 4.99
4.75 4.25 4.35 4.19 4.59 4.99

In addition, BNZ has a fixed seven year rate of 5.55%, while TSB Bank offers a fixed ten year rate at 5.75%.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Wow now the ASB raises its rates. It's the signal it sends to the market, not the size of the increases. Time to take some money off the table especially those investments that require considerable maintenance and repairs or are turning over tenants regularly.

If I had a dollar for everytime one of your predictions came true, I'd have 50 cents. The banks are raising their rates now so that hey can lower them again when the OCR is cut soon. 100% marketing.

Another prediction to hold you to Onwards..interesting times

We will see. The States and Europe are looking to up their lending rates. If they do that it will help our dollar and lessen the need to drop rates to support the kiwi dollar. You all forget we are on the lowest rates ever historically to support the economy and our dollar. Yellen admitted last week even the States is surely but slowing picking up economy wise.

There is little correlation between OCR cuts and fixed term lending rates

There was a correlation until the last two OCR cuts when they held most of it on to boost their profits further. Prior to that they always dropped by the same amount as the OCR. Greedy bankers!

You are thinking about variable interest rates, not FIXED interest rates, which are driven by swap rates, credit spreads, funding requirements etc.

It might not be marketing this time. Offshore borrowing costs are going up and so are the risk premiums.

A dirty banker tactic - we have seen it all before over the last 5 years - just a cunning attempt to panic those on variable rates to fix now "before rates go higher" when in fact the banks know full well that the OCR will be cut in Nobember and then fixed rates will dive below 4%.

Yep

Do you think the OCR will impact swaps as well then?

Largely not. Unless the language or future actions differs from market expectation. People forget swaps already bake in what the market expects to happen.

I doubt we will see fixed rates below 4% and I doubt any further cuts to the OCR will be largely passed on. I guess the bottom is in for interest rates.

Studies have shown that debt driven asset bubbles suppress interest rates for at least 10 years. As soon as rates rise the economy will be pushed into recession and then rates will be cut. This has already occurred in Sweden and effectively happened in NZ with the aborted rate hiking cycle post GFC. At the end of the day the NZ govt will not allow rates to rise, they can engage in QE if required. NZ floating and fixed rates at present are related to offshore funding rates and OCR, but in extremis the govt can suppress NZ fixed and floating mortgage rates. As for Yellen she has been talking a good game for 2 years, but only managed one rate rise. The Fed will raise in Dec 2016, then observe. Even 2 rate rises would push the US economy into recession and then you will be wanting to hold gold. I think we will see 1yr fixed rates below 3% before we see them above 6%

But New Zealand is not in a recession.

Pretty close to recession if strip out inflation and population growth (fueled by immigration). Auckland has negative per capita GDP growth at present, so theoretically Auckland is in recession.

OK - I see what you are saying, the only problem is that as far as I can tell people are not acting like the country (Auckland) is in recession. This is the problem. While I understand rising interest rates could tip the country into recession - I don't believe the government has the control that people think they have. As many people have pointed out traditional economics do not appear to working any more. What is going to happen in the future - I don't know - but I think the future is going to be interesting ( I'm most curious about the apparent stalling of the auction of apartments) .

And studies have shown that debt driven asset bubbles lead to more severe recessions.

Auckland property market has well and truly stalled, I would expect a decline in price. Median and average price will hold up as LVR changes will skew sales to owner occupier (20% deposit) rather than investment properties (40% deposit). So as actual market prices fall will see median and average prices from QV and B +T hold up.

While agree that market appears to have stalled (but where are all these overseas buyers we have heard about) - I'm not so sure of where from here.....

Need a Vancouver Tax ASAP

WOW one intelligent comment amongst the usual rubbish, well done mja

I suspect they could be raising rates now, so when he OCR does drop they have some room to drop them a bit, and not be accused of not passing on the cuts. A pity they are reducing deposit rates on call, to match. So are they just increasing their margins?

In the year to Sept 30 2015 the big four banks made a profit of 4.59 billion from their NZ operations - the results usually come out around 1 November. With the high margins currently raked in will they hit 6 billion in the year to 30 Sept 2016? What's your estimate?

When quoting profit amounts, be sure to include capital amounts invested. $1m in interest sounds like a massive amount, but if that's all you got for investing $100m, would you be happy as an investor? (I am not saying that's what the returns are, I am just using that as an illustration) ... relativity is important.

Air New Zealand return on equity = 12%; Spark = 22%; ANZ = 12%; Westpac 14%; Fletchers 13%...

What's the average Auckland Property Investor ROE?

Need to compare with other banks in different regions to see how the margins are relative to their peers....

no use comparing to different industries... like apples and pears

But they operate in NZ... so NZ market comparison is warranted from an Investment point of view.

Net interest margin doesnt look out of kilter with globals... https://datamarket.com/data/set/28ls/bank-net-interest-margin#!ds=28ls!2...

Mister B / Grant A - whoever. $4.5 billion profit means $1000 profit from each and every one of us. Even every one month old baby. Rapacious.

I don't know about you KH, but if I was lending $1m to buy a house, I'd want more than $1000 in profit. Keep in mind the credit sector has grown from $342b to nearly $400b in 2 years (http://rbnz.govt.nz/statistics/c5) ... so it's largely credit that has fueled the increase. And from what I can tell, NZ Net Interest Margins (~2%) are below world averages (~3%) and below US ... https://datamarket.com/data/set/28ls/bank-net-interest-margin#!ds=28ls!2...

Methinks that the more than $1000 profit (each year) is for every resident of NZ not just the million dollar investors.

And this is ultimately in a very low risk business. After all, the RBNZ has organised it so that all virtually all risk to the NZ banks is carried by the depositors in the banks with the unique in the world OBR guarantee to the banks.

Actually, under OBR capital and shareholders equity is all used first. http://www.rbnz.govt.nz/-/media/ReserveBank/Files/regulation-and-supervi...

And thereafter?

ANZ thus has a total capital requirement held against its mortgages to cover potential losses of $1.163 billion.

Just to reiterate for ANZ that's about $1.2 billion of capital held against total mortgages of $57.5 billion. Read more

It would seem bank capital underpinning the current residential property price structure is priced for perfection.

KH - that's one of the more naive comments made here from someone who clearly doesn't understand money. Invest tens billions of capital into NZ and fund 80% plus of everything that NZers want to borrow to assist them in their lifestyles and who'd have every expectation that your required return on capital would no doubt work out in dollar terms to at least that. Read MisterB's comments about that might enlighten you.

interest rates going up...haha that'll be the day...

#headfake

Interest rates are set to rise, the US have indicated twice a rate rise which is preparing the US economy for the initial blow. China are set for a rates rise, central European Banks have indicated a rates rise. When that occurs the Big Aus Banks will be legitimately paying more for funds that will be immediately passed on to NZ customers. Aus banks are a little gun shy in Australia at present as there is a commission of enquiry regarding interest rates. Could be to do with the coincidences like all 4 players raising interest rates in the same week?
Banks do seem to show complete disregard now for the Reserve Bank and the OCR , so is that a sign that the Reserve Bank is becoming more and more redundant, big money savings there for NZ tax payers.
Big Profits coming for banks, even larger with branch closures, time to buy bank stock....

The Market has priced in 3-4 Fed rate rises through Sept 2017. Fixed rates reflect this, anything less than 3 rate rises in the next 12 months should lead to a fall in rates.

Mja - that considerable overstates the facts. As at last night following the positive US payroll numbers the market has only just under two Fed rate hikes priced in all the way out to Mar-18. I.e. An extremely modest rise over 18 months and something that certainly could rise further

Matters not. Fed Funds is a redundant rate offered and traded in the low $billions between the US FHLB banks and foreign primary dealers seeking marginal arbitrage opportunities to fund liquidity.

3mth Libor has just moved up to ~87bps and Treasury GC (collateralised lending, not unsecured) is well above the top end of the current Fed funds 50 bps corridor for IOER. View latter's graph

My numbers have 45.2% chance of 50-75 bps rise, 28.7% chance 75-100 bps rise (25-50 bps rise 16.3%), 100-125 bps rise 8.3%, 1.3% chance 125-150 bps rise and 0.1% 150-175 bps rise. So weighting indicates just over 3 rate rises priced in. Less than 0.1% rating of flat or fallingFed funds rate through Sept 2017.

The 20-Sep-2017 CME Fed Funds contract reflects the probability of each 25 bps rate corridor being reality by the expiry date, not the magnitude of the rise. Hence there is a quoted 45.2% probability the Fed Funds rate corridor will have risen by 25 bps to 50-75 bps by 20-Sep-2017. All other corridor options are less probable.

Where's that guy from Christchurch ? who dissed my comment that interest rates would eventually go back up again ....only about 5 days ago and here we are today, with this news.

I think there is some one in CHC who is perhaps, shall we say "overleveraged" ......