ASB hikes mortgage rates ahead of RBNZ's interest rate review

Personal Finance

The run of lower and lower mortgage rates may be ending with major ASB pushing through some chunky home loan rate hikes, along with some TD rate rises

14th Jul 21, 9:04am by David Chaston

ASB has kicked off a new round of substantial home loan rate increases.

It has matched them with some term deposit increases too but those tend not to be for terms where most savers invest.

The higher mortgage rates are in direct response to sharply rising swap rates recently.

Daily swap rates

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Source: NZFMA

And these hikes come ahead of the RBNZ OCR rate review due this afternoon. This timing has a whiff of arrogance by ASB.

They also come after ASB has apparently decided to ignore the RBNZ's Funding for Lending programme offer of 0.25% money. Rather the bank has focused on the rising swap rate.

Today's hikes are substantial.

ASB has raised its six month fixed rate by +30 bps to 3.29%

It has raised its one year fixed rate by +36 bps to 2.55%, and its two year rate by the same amount to 2.95%. It is these two rates hikes that are the significant ones.

Their new rates for three, four and five years are all up by +30 bps to 3.29%, 3.69% and 3.99% respectively.

This hike is important because ASB is the second largest home loan lender in New Zealand and tries to take a leadership position in the mortgage market as it chases ANZ.

It is likely that the other major banks will follow this hike, given the cover that ASB has now given them.

Craig Sims ASB’s executive general manager of Retail Banking says, “The New Zealand economy is proving robust, and the economic outlook has improved. While interest rates are now increasing, they remain at historically low levels.

“We’re mindful that some first home buyers in particular have only ever experienced the current low-rate environment. When we assess a home loan application we use a ‘test rate’ that is substantially higher than current mortgage rates to give customers the confidence they can continue to make payments if rates increase.

“We encourage home lending customers to talk to us about their options, which could include spreading mortgage amounts over different terms to give certainty over time or making extra payments while rates are very low.

“ASB is focused on the long-term financial wellbeing of our customers whether they’re borrowers or savers. In line with this the changes to our Term Deposit rates today will see our most popular 6-month term move to 1.00%.

“We’re committed to offering innovative home lending products such as our 1.79% variable Back My Build loan for customers building a new home, and helping customers budget with the comprehensive calculators and tools available on our website.

“Whatever the market conditions, our focus is squarely on offering customers market-leading home lending products and leading customer experiences,” said Mr Sims.

Now that we are in a mid-Winter real estate season and sales volumes are falling away somewhat, now is a good time for bank pricing managers to push through rate increases. Even if they overdo it, it will allow them to offer 'specials' and 'discounts' when the Spring real estate season kicks off - in only about eight weeks from now.

The opportunities to lock in low fixed rates may be fading, but the current offers are still historically low, so probably still deserve attention if you are the view that rates can only go up over the next few years.

One useful way to make sense of these changed home loan rates is to use our full-function mortgage calculators. (Term deposit rates can be assessed using this calculator).

And if you already have a fixed term mortgage that is not up for renewal at this time, our break fee calculator may help you assess your options. Break fees should be minimal in a rising market.

Here is the updated snapshot of the lowest advertised fixed-term mortgage rates on offer from the key retail banks at the moment.

Fixed, below 80% LVR	6 mths	1 yr	18 mth	2 yrs	3 yrs	4 yrs	5 yrs
as at July 14, 2021	%	%	%	%	%	%	%

ANZ	3.39	2.19	2.35	2.59	2.99	3.99	4.39
	3.29	2.55	2.79	2.95	3.29	3.69	3.99
	2.99	2.19	2.35	2.55	2.99	3.39	3.69
	3.55	2.19		2.55	2.99	3.39	3.69
	2.99	2.19	2.45	2.59	2.99	3.39	3.69

Bank of China	3.45	2.15	2.15	2.55	2.75	3.05	3.35
China Construction Bank	4.70	2.65	2.65	2.65	2.80	2.89	2.99
Co-operative Bank (*FHB only)	2.19	1.99*	2.39	2.59	2.99	3.39	3.69
Heartland Bank		1.85		2.35	2.45
HSBC	2.79	2.09	2.19	2.49	2.79	3.19	3.49
ICBC	2.89	2.15	2.15	2.35	2.75	2.99	3.19
	2.79	2.19	2.39	2.49	2.79	3.09	3.39
[incl Price Match Promise]	2.89	2.19	2.35	2.55	2.99	3.39	3.69

Fixed mortgage rates

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Source: interest.co.nz

Source:

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80 Comments

by Nifty1 | 14th Jul 21, 9:08am 1626210491

That's quite an increase...wait for other banks to follow in 3,2,1...

by Pragmatist | 14th Jul 21, 9:12am 1626210771

Or do the other banks ignore it and ASB has to back down. Guess we'll know by the end of the week.

by Advisor | 14th Jul 21, 9:33am 1626212034

They could but that's not how cartels work.

We're drowning in mortgage debt and I guess banks can't grow their loan books much more. Therefore, raising rates will help the cartel cream more margins on existing loans and keep New Zealanders in debt servitude for longer.

by Nzdan | 14th Jul 21, 9:36am 1626212181

by Nzdan | 14th Nov 19, 7:05am
Banks probably want interest rates to rise after a prolonged period of increasing loan book size. A bait and switch of sorts. Get everyone juiced up on low lending rates and then tighten up the vice on the balls.

by Contrarian | 14th Jul 21, 9:14pm 1626254086

It also depends on the Bank's books of how much loans are coming due for refixing in the next quarter or so. They adjust rates to push people to select the rates that suits the Bank in terms of profits.

by Pragmatist | 14th Jul 21, 9:46am 1626212766

What makes you say the banks can't grow their loan books much more? I thought they were having big months with the property sector going nuts?

by Advisor | 14th Jul 21, 12:43pm 1626223413

The fact that rates had to be increased by over 16% has something to do with it.

In simple terms, banks establish and monitor certain limits on their lending capacity without overly-exposing themselves to possible future losses.

Often when quantitative risk managers believe a lending institution is approaching these limits, they force interest rates upwards in an attempt to both accumulate more reserves and reduce borrowing demand.

by Cowpat | 14th Jul 21, 9:59am 1626213556

The banks exhibited exactly the same behaviour in mid 2013 including ASB . By the time the RBNZ raised the OCR in March 2014 ( in error) , mortgage rates had basically peaked, the rest is history.

by David Murray1 | 14th Jul 21, 7:06pm 1626246364

The real cartel in NZ is the big three fuel corporations - BP, Mobil, and Z/Caltex. They almost always move their prices on the same day, by the same amount.

by Nzdan | 14th Jul 21, 9:35am 1626212129

Do the other banks ignore it, take on a bunch of new clients looking to fix cheap for long and then find themselves in 12 months time caught with a book filled with 3 - 5 year fixes on low interest rates while the OCR has gone up by 60 - 100 bps?

by Pragmatist | 14th Jul 21, 9:44am 1626212668

How important is OCR in the big picture? I thought banks needed a lot more long term funding rather than overnight, so aren't bonds and other funding way more important than the bit that fills in the short term gaps?

by buyandhodl | 14th Jul 21, 9:57am 1626213458

Yup but its all built off the OCR.

OCR is the 'risk free rate' - if you increase the OCR you increase the required return on all investments. Thus OCR increase -> bond yield increase, also Equity required return increase. So it doesn't matter where you get your money from, an increase in the OCR will increase the cost of that funding.

by MortgageWhiz | 14th Jul 21, 11:00am 1626217244

Fixed rates are affected more by Wholesale rates while the OCR affects floating rates.. Interesting to note the Wholesale rates have barely changed in the last few months, yet the banks have jumped on in a slapped on many multiples more of margin. Guess ASB's focus is to smash all records on profit now they have grown their mortgage book size to record levels too

by MisterB | 14th Jul 21, 11:15am 1626218129

Where are you seeing that wholesale rates havent changed? David Chaston has continually reported they have risen sharply in the last month?

by MortgageWhiz | 14th Jul 21, 12:01pm 1626220913

Well right here.. In the last 3-4 mo, most wholesale rates only gone up 20-30basis points but I'd suggest it's these advertised rates - especially the longer end of the scale where bigger profit margins are multiplied by many years, that have risen sharply

by David Murray1 | 14th Jul 21, 7:20pm 1626247204

That is why you should have broken and re-fixed for 5 years about 3 months ago when the rates were still at their lowest and industry analysts were predicting rate increases.

by David Murray1 | 14th Jul 21, 7:17pm 1626247058

If they are looking to fix a home loan interest rate "cheap for long" then they won't be fixing for 12 months. They'll be fixing for 4-5 years.
And the best time to do that has already past because we're already on the rising side of the crest.
Rates are only going to rise. Fix now and head off the increases in the next several years.

by kpnuts | 14th Jul 21, 10:52am 1626216739

kiwibank already followed -- so guess the answer took only an hour -- i suspect taht with CPI data and a review due -- they are expecting a whole load of fixing acticity and jumped the gun to maximise margins

by Pragmatist | 14th Jul 21, 10:57am 1626217040

Where did you see kiwibank has followed, their website is still 2.19% and 2.55% for 1 &2 year?

"Asked whether Kiwibank would also be increasing its mortgage rates, a spokeswoman said the bank was currently reviewing its rates but would not make an announcement today."

by kpnuts | 14th Jul 21, 2:12pm 1626228741

my bad -- headline said two banks and named Kiwibank -- failed to i failed to read past teh clickbait ---sorry -- kiwibank just raised TERM deposit rates -- so i suspect that it will follow with mortgage rates -- but not yet sorry

by Dave Moderato | 14th Jul 21, 9:28am 1626211739

ASB pantomime. Losing market share.

by David Chaston | 14th Jul 21, 10:43am 1626216206

There is no evidence of that. Check this out, section G.

by Justa comment | 14th Jul 21, 10:46am 1626216361

ASB is in the real world. RBNZ is too slow to remove emergency rates.

by Dave Moderato | 14th Jul 21, 12:33pm 1626222832

The real world is what's happening offshore.

by David Chaston | 14th Jul 21, 1:26pm 1626226012

Only if it affects NZ wholesale rates - and so far there is not a very strong corelation. Domestic pressures are the key drivers at present. You can see this with the UST yields which have been moving sideways recently while the NZGB yields have been moving up.

by Contrarian | 14th Jul 21, 9:12pm 1626253978

The Wolf is driving the Sheep to the Paddock ?

by Rosenstein | 14th Jul 21, 9:10am 1626210635

Professor Richard Werner says interest rates follow GDP down. I'm quite sure during Covid, NZ has not miraculously solved their productivity problems. They have however flooded every orifice with new credit. So do you raise interest rates to put a cap on the inflationary pressures of QE? Or just stop QE first?

by theglc | 14th Jul 21, 10:05am 1626213942

you would expect bond buying to be scaled back first

by custard | 14th Jul 21, 9:14am 1626210863

ASB doing some of the heavy lifting the RBNZ seems incapable of?

by Nifty1 | 14th Jul 21, 9:19am 1626211166

Orr will be blasting... "what about my flp guys!"

by Mrs The Point | 14th Jul 21, 9:41am 1626212484

Can someone explain why they do this rather than tap the FLP? Is there some disadvantage to the FLP for the banks?

by ikimpaul | 14th Jul 21, 9:52am 1626213157

whilst not definite - it's likely they are worried about the incoming RBNZ capital requirements - which the RBNZ requires banks to have a certain buffer of capital (deposits) to protect against the bank failing. The RBNZ proposed a lift in capital requirements in 2019 to take effect in 2020- these were delayed becasue of Covid.

Deposits in the last few months have started to decline - as people spend their money on houses, renovations, new cars etc.

To lift its deposits - ASB will need to incentivise people to not withdraw their money and ideally save more - so they lift deposit (both savings and Term) interest rates. However to preserve their margins (the amount of profit they make) they also have to lift mortgage interest rates.

Yesterday ASB and kiwibank lifted deposit interest rates - so this is the counter rate lift to hold the margins. Kiwibank may follow by lifting their rates as well- although they only lifted deposit rates for their 200 day term deposit and its a special offer valid until this weekend- so depending on how many deposits they get - they may not need to lift their mortgage rates.

by Mrs The Point | 14th Jul 21, 10:15am 1626214530

Thanks

by HeavyG | 14th Jul 21, 9:53am 1626213197

If/when OCR increases so will FLP funding costs. Banks are picking early increase in OCR.

by gypsymanz | 14th Jul 21, 9:19am 1626211154

But, but, but,
I thought the RBNZ set and controlled interest rates! LoL
Maybe we will see now that the ocr is in fact just a floor underneath interest rates not a direct lever.

by VeryInterested | 14th Jul 21, 9:25am 1626211504

and so it begins…..

by ikimpaul | 14th Jul 21, 9:26am 1626211619

Damn- my prediction was out by a month- I have stated a number of times it would be an August lift in Mortgage rates and I was 3 weeks too late.

Not really a surprise - with the new RBNZ capital requirements kicking in this year for the banks and deposits falling in recent months - the only way to get deposits back is to lift term deposit rates- which will then mean a lift in mortgage rates at the same time if banks margins are to be maintained.

by David Murray1 | 14th Jul 21, 7:23pm 1626247401

The rates started increasing about 3 months ago.

by Dave Moderato | 14th Jul 21, 7:40pm 1626248450

"Some rates" started increasing about three months ago. Others dropped.

by company of heroes | 14th Jul 21, 9:39am 1626212398

Again this shows when banks increase their rates they just need to find a good reason. And now they got it. Hopefully this is a wakeup call for those people who think bank economists' predictions are jokes. Time to get back to reality.

by morphyoss | 14th Jul 21, 12:52pm 1626223978

Even a broken clock is right twice a day.

You only need to look at the last 18 or so months to see how terribly wrong bank economist predictions have been.

by AndrewPerry | 14th Jul 21, 9:46am 1626212775

I don't think it's fair to say ASB are ignoring the funding for lending programme - they have said they are using those funds for the Back My Build product, which remains at an interest rate of 1.79% after today's rate hikes. They had $2 billion worth of applicatioins for that product in the first month so it's a raging success.

The funding for lending programme is based on a floating interest rate, so it should move independently of fixed interest rates.

by General Comment | 14th Jul 21, 9:49am 1626212940

ASB led the charge last time too. Would have cost me 0.7% on a 5 year term if I hadn't been angry enough, but still cost me 0.2% (fixed at 3.19%). They're not giving anyone a chance to react to other banks moving first, they must be worried.

by Brock Landers | 14th Jul 21, 10:07am 1626214071

Im confused. The clowns that inhabit these forums assured us that mortgage rates will never rise. They also claimed that house prices will never fall.

Are they lying?

by ikimpaul | 14th Jul 21, 10:24am 1626215045

I think its a case of wishful thinking.

I had one "commentator" who was quite abusive last week - when I said interest rates would rise sooner rather than later - accused me of been spiteful. Spiteful no realistic yes

by Pragmatist | 14th Jul 21, 11:05am 1626217552

You'll have a quote to back that up then.. Can't recall anyone saying rates would never increase a tiny amount. But I sure don't think they are going to increase far and fast like the DGM chicken littles' keep implying, simply because the RBNZ knows that would be like throwing a grenade into a packed auditorium.

by youngdumbandbroke | 14th Jul 21, 11:14am 1626218044

I can't recall tiny being used in any assertions. All I recall is rates won't increase

by printer8 | 14th Jul 21, 12:14pm 1626221647

Pragmatism
Agreed.
I assumed Brock was talking about “clown” claims being by his ilk. :)
Personally posted five or six weeks ago that due to upside to interest rates that BNZ 2.99% for 5 years was attractive . . . and more upside to come.
Posted for a least a couple of years that one should be looking to pay down debt for the reasons that are now occurring.
Personally posted many times I have experienced three down turns (albeit short term of two or three years) in house prices.
Brock and dyb need to get a handle on things.

by fortunr | 14th Jul 21, 12:36pm 1626223015

Rates will increase, and not by a tiny amount. As a start, just look at the RBNZ projections, made with data that is already obsolete and that now is all pointing towards a need for higher rates than previously planned.
Stating that interest rates will not increase significantly is wishful thinking.

by Pragmatist | 14th Jul 21, 3:09pm 1626232159

The same RBNZ that keeps saying inflation is transitory and it will ignore it for now? And pay attention, I said they wont increase significantly and quickly. In a decade they may well be back at 5 or 6%, depending on how the economy behaves, but not in a year or two like some here are wishing for.

by Snodgrass Thro… | 14th Jul 21, 3:17pm 1626232632

I've been reading comments here for 14 years. I have never seen a single comment stating interest rates would never rise. I have never seen a single comment stating property prices could never fall.

by Hummy | 14th Jul 21, 10:29am 1626215371

IT might be bargain rate if they lift OCR this afternoon by 0.75%.

by Carlos67 | 14th Jul 21, 10:48am 1626216501

Maybe the ASB have a "man on the inside" ? it could be a win win though, the ASB is softening up the public to a rise before the official announcement of a rise ?

by Carinaz | 14th Jul 21, 11:01am 1626217270

ASB hikes mortage rate... is it to tell Mr Orr that we are and will do our part, you do not touch the OCR, please.

by Roy1 | 14th Jul 21, 11:15am 1626218140

https://www.newshub.co.nz/home/money/2021/07/asb-increases-interest-mor…

Why just before RBNZ announcement ?

Is it to influence Mr Orr to not act on OCR or be soft !

by JimboJones | 14th Jul 21, 11:39am 1626219585

Do these rates take effect today? Will ASB match the other banks rates today?

by ikimpaul | 14th Jul 21, 11:52am 1626220328

their website is showing effective today- but sometimes if you have a pre-approval and are close to making an offer or settling the loan they will give some leeway- pays to have a discussion with the bank and will depend on how good a customer they view you as - if they are your main banker and they get most of your transactions ie transaction account , credit card etc they can be quite generous in what they offer.

by stjohn | 14th Jul 21, 11:57am 1626220632

What's happening with the FLP giving banks access to money at 0.25% until at least July next year. So far they have only tapped into >$5billion of the $28 billion available.

Surely the banks can't lift rates whilst this super cheap money is available to pass onto customers???

Unless they plan to raise rates and then grab the FLP money and make some serious margin.

Interest rates offered by banks should be going down as they tap into this 0.25% money and passing it onto customers, regardless of the OCR raising - they can still access this money.

by Nzdan | 14th Jul 21, 12:14pm 1626221647

Sure they can.

by MisterB | 14th Jul 21, 1:32pm 1626226323

The FLP money is a small percentage of their asset base, it's not the whole thing. I believe as another has commented ASB said they are using the FLP for a build loan offer at 1.79%, and that hasnt moved. FLP is also variable rate - so if the OCR does go up, so does the cost to the bank. No treasurer is going to use to fund fixed rates.

by taimaiakka0 | 14th Jul 21, 12:07pm 1626221227

Rates are too low to have any adverse effect on housing market for even it it goes up slightly current low interest rate environment is more or less permanent.

https://i.stuff.co.nz/life-style/homed/real-estate/125743196/why-house-…

by Hari | 14th Jul 21, 12:20pm 1626222012

Does that mean as a Bank ASB could not hold it any longer to the upward pressure, but other banks are able to handle the pressure a for longer duration ?
speaks how desperate ASB was

by Just a Plumber. | 14th Jul 21, 12:21pm 1626222076

What’s the scenario when NZ catches “Delta”.?

by company of heroes | 14th Jul 21, 12:40pm 1626223242

We might get into stagflation as US might be getting into...So better not happen

by Brock Landers | 14th Jul 21, 2:01pm 1626228118

Negative sideways population growth.

by Squishy | 14th Jul 21, 1:09pm 1626224974

In the long-term retail interest rates only go downwards in New Zealand. Betting against that trend is a widow maker.

by David Chaston | 14th Jul 21, 1:34pm 1626226440

That just isn't correct. Prior to 2008 they had been rising for a decade or more.

by 7jai | 14th Jul 21, 1:33pm 1626226433

Congrats ASB! You've started the journey where first home buyers will never be able to buy a house now. House prices will still not drop, and with interest rates moving up, it will be almost impossible for FHB to purchase anything.

by David Chaston | 14th Jul 21, 1:42pm 1626226940

That isn't correct either. The data is clear; FHBs are taking our many more loans (by number) and are winning an increasing share of all mortgages being issued. No evidence FHBs are being frozen out. And secondly, if you are scared off by a 2.95% fixed rate, you probably don't have the financial resilience to be buying in the first place. And finally, if a low rate is your thing, ASB is offering 1.79% for a new-build loan. It is far from 'impossible', no matter what the barbeque conversation is.

by Carlos67 | 14th Jul 21, 3:19pm 1626232775

Good to see you jump in and add some "Moderation" to the conversation David, the DGM's here were making me want to jump off the nearest cliff.

by 7jai | 14th Jul 21, 5:34pm 1626240859

So which is it now? The government is telling me that it's growing increasingly tough for FHB to afford a first home. But now your data is saying FHBs are taking many more loans and are winning increasing share of all mortgages issued? Sorry I'm so confused which direction we are heading. I only trust the Labour government and their policies.

No one is afraid of a 2.95% fixed rate. I'm sure there will be when the rates goes to 4-5-6% though. Either way, I'm very happy!

Finally, low rate isn't my thing, but the 1.79% new-build loan is a floating rate. I'm sure by the time things get built, that number will become 3.79%. Such wonderful news!

Overall very happy with the news and also enjoying my BBQ at the same time! Win-win!

by MisterB | 14th Jul 21, 6:00pm 1626242444

The data tells the story, the government tells the spin (typically). It's true that it's hard(er) for FHBs than a year ago, when prices were lower. But actually higher interest rates suppress price growth (and converse as evidenced by 2020 data)... so it may be swings and roundabouts. This time last year, rates were at 2.55%, so same as this change.

Re the 1.79%, yes it's a floating rate, so linked to the OCR more directly than a fixed rate (and especially as FLP is directly linked)... so are you picking the OCR to go up by 2% in the time it will take to build a house? Bold.

by Brock Landers | 14th Jul 21, 2:11pm 1626228667

I'm just waiting for the series of heartwarming ASB ads where the familiar kiwi obese guy in the corporate themed swan-dry goes on a crash diet to avoid foreclosure after being lured into stupid levels of debt by his own ad.

by MisterB | 14th Jul 21, 6:02pm 1626242576

Forgetting the fact that the rates only apply to new fixed loans, the delta isn't massive ... 0.30% on a $500k loan is $30 per week. If people can't absorb $30 a week, they havent done their maths right when buying a home. Most people have no doubt been paying down during the golden times.

by CWBW | 14th Jul 21, 1:34pm 1626226478

Good news for cashed up buyers, this will shave off some competition and release some inventories from distressed owners. Time to go door knocking with a proposition.

Love the carts that lead the horse.

by Brock Landers | 14th Jul 21, 2:03pm 1626228201

There is still time to sell at the top.

Be quick.

by EarlyRiser | 14th Jul 21, 3:25pm 1626233114

Better be real quick!

by Pragmatist | 14th Jul 21, 4:03pm 1626235436

its not a top, its a (semi-)Permanent High Plateau... no rush.

by Dave Moderato | 14th Jul 21, 2:20pm 1626229245

OCR says no.

by Get Smart | 14th Jul 21, 6:57pm 1626245868

Well we all know the greediest bank now. My advice is leave it or do not go to them. Consumer power is the way to deal to this.