The two year swap rate rose to 1.40% on Wednesday, its highest level since June 2019.
That is a rise of +11 basis points since the start of September, and +36 bps since the start of August.
This key benchmark is on the rise even though long term wholesales rates are falling recently.
And that is because financial markets are convinced the Reserve Bank (RBNZ) will raise the Official Cash Rate (OCR) on October 6 at its next review.
How much it might rise then is up for debate. It may well be just +25 bps, but a number of analysts think +50 bps is a live option too.
Their reasoning is relatively easy to follow: employment levels are high with wages rising. And prices are rising and likely to increase faster, meaning inflation is high. Both are the key mandates the Minister of Finance has given the RBNZ: jobs and prices, and both are under pressure on the up side.
But here is the kicker. mortgage rates are now lower than they were the last time the wholesale swap rate was at 1.40%, and by about 100
60 bps. So you might think that banks would press ahead to the 'old normal' for a two year fixed rate mortgage offer.
This is the key comparison.
|2 year Fixed, below 80% LVR||2 yrs||diff||2 yrs|
|when the 2 year swap rate was last at 1.40%||%||bps||%|
|Bank of China||4.89||-210||2.79|
|China Construction Bank||3.65||-80||2.85|
This is only the situation if you think the next RBNZ rate change is already fully priced in. Depending on the commentary the regulator offers with its review, more hikes may get priced in and the difference will then shrink really fast as current rates get yet another boost as the 2 year swap rate rises above 1.40%.
One useful way to make sense of these changed home loan rates is to use our full-function mortgage calculators.(Our mortgage calculators are temporarily down, but will be back soon.)
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 however.