The inflation surge pushes up mortgage rates further

Personal Finance / analysis

Westpac joins ASB in pushing through higher fixed mortgage rates, as rising inflation expectations push up wholesale rates, and all eyes turn to how the RBNZ will react

18th Nov 21, 4:06pm by David Chaston

Westpac is the next to raise home loan rates, raising most by about 20 basis points.

As a result, it has the highest or equal highest rates for all fixed rates to three years.

It follows the lead of ASB which raised rates to these new levels on Tuesday.

For a home owner with a $500,000 mortgage, the two-year rate of 4.35% will require repayments of $2,489 per month. Twenty weeks ago at the beginning of July that rate was 2.53% and required monthly repayments of $1983. That difference is now $506 per month. Even in these inflationary times $500 out of most household budgets is a lot. It is not going to be spent elsewhere in the wider economy. And we can't really say it is being recycled into savers accounts in higher interest rates.

Both the Cooperative Bank, and China Construction Bank also raised rates today (Thursday) but not to the levels of ASB or Westpac.

The Reserve Bank (RBNZ) business survey of inflation expectations rose more than expected, underpinning the rising trends in wholesale markets, especially at the short end.

The RBNZ is to review the Official Cash Rate next Wednesday, and Thursday's moves in both wholesale and retail markets are in response to expected RBNZ reactions to rising inflation, and rising inflation expectations.

With both ASB and Westpac having moved up, all others will now follow, probably in short order.

One useful way to make sense of these changed home loan rates is to use our full-function mortgage calculator which is also below. (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. But 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 November 16, 2021	%	%	%	%	%	%	%

ANZ	4.00	3.45	3.85	4.15	4.45	5.24	5.54
	4.19	3.65	4.09	4.35	4.69	4.95	5.19
	3.89	3.49	3.89	4.15	4.39	4.79	4.79
	3.99	3.49		4.15	4.49	4.69	4.85
	4.19 +0.20	3.65 +0.11	4.05 +0.16	4.35 +0.16	4.69 +0.20	4.79 +0.20	4.95 +0.20

Bank of China	3.49	3.29	3.49	3.79	4.09	4.39	4.69
China Construction Bank	3.45 +0.20	3.45 +0.20	3.65 +0.07	4.15 +0.16	4.45 +0.20	4.95 +0.40	5.05 +0.36
Co-operative Bank [*=FHB]	3.49 +0.15	3.29* +0.15	3.89 +0.20	4.15 +0.16	4.49 +0.25	4.69	4.85
Heartland Bank		2.90		3.45	3.60
HSBC	3.69	3.29	3.59	3.84	4.19	4.49	4.69
ICBC	3.59	3.19	3.59	3.85	4.19	4.39	4.69
	3.79	3.15	3.45	3.69	3.75	4.29	4.49
	3.29	3.29	3.64	3.94	4.19	4.54	4.70

Fixed mortgage rates

Select chart tabs

Source: interest.co.nz

Source:

Daily swap rates

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Source: NZFMA

Comprehensive Mortgage Calculator

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85 Comments

by tothepoint | 18th Nov 21, 4:19pm 1637205556

Getting tough for those deep in debt…..

A silver lining for others.

TTP

by J.C. | 18th Nov 21, 4:17pm 1637205432

Not a silver lining for consumer spending. Less share of wallet allocated. Death by 1,000 cuts. And that's not even accounting for inflation.

by HeavyG | 19th Nov 21, 8:54am 1637265249

That's the point, consumer spending down therefore inflation down. RBNZ targeting CPI as per job.

by realterms | 18th Nov 21, 4:23pm 1637205801

Who benefits? Wholesale lenders / bond holders? Can't say that's the benefit I'd like to see.

by ACB | 19th Nov 21, 2:59pm 1637287189

Savers.

by napierboy | 18th Nov 21, 4:30pm 1637206236

Might be more of a silver lining for you if savings rates were increasing to match, but they're not. So unless you own shares in these banks, you are also losing out on the deal.

by Stev-O | 18th Nov 21, 5:03pm 1637208182

Lol RBNZ fked up by moving the rate up to control something they have absolutely no control over, and the banks know it hence higher mortgage rates but no corresponding higher savings rates. Jacking the OCR to 5% is going to do jack except fk the country into the ground as it's a world-wide issue not just NZ. It's like killing yourself to fix global warming :)

by Independent_Observer | 19th Nov 21, 7:53am 1637261626

Driving rates to zero (and removing LVRs etc) is where central banks %^*+% up…not the opposite.

by J.C. | 18th Nov 21, 5:11pm 1637208688

So unless you own shares in these banks, you are also losing out on the deal.

Any idea why CBA's share price has fallen 10%+ in the past 2 days? Bit odd isn't it.

by dictator | 18th Nov 21, 5:34pm 1637210095

The announcements yesterday included flat operating performance which could provide an explanation. Yet a simple price and volume comparison makes it look like someone has entered some big trades in the 7-10 m share volume range. The latest drop looks like they exited a very profitable position but with a lack of orders to hold the price up.

Not odd but shows bit of a weak market for buying the shares.

by napierboy | 19th Nov 21, 8:17am 1637263023

No I'm not sure why, I haven't been following that one sorry. I do note that ANZ's share price on the NZX has risen more than 20% over the last 12 months so I think the banks will be fine.

by Notgreedykiwi | 18th Nov 21, 7:28pm 1637216913

People are not worried, they are buying tiny houses for multi million dollars in auctions. The pressure is relentless. No one is stopping.

The population doesn't care about the interest rates.they just see that their house will be 30% up in price every year. In 10 years it will be 300%. So why not put all the money into buying the house.

by Roark78 | 18th Nov 21, 7:41pm 1637217699

Tis the nature of lemmings to follow the one in front sadly

by Roy1 | 18th Nov 21, 10:01pm 1637226107

Who is to be blamed. Jacinda Arden gave personal guarantee that will not allow the house price to fall and her knights Robertson and Orr are leaving no stone unturnedto ensure that ponzi continues.

by msp | 19th Nov 21, 7:19am 1637259573

more like Key promoting greed and advantaging the rich in every policy decision, as you would expect from a servant of the 1 percent. Ardern's caught in that vortex but at least she doesn't buy and sell money...

by Roark78 | 19th Nov 21, 7:57am 1637261855

That’s because she is economically illiterate

by rastus1 | 19th Nov 21, 9:07am 1637266038

..she can be excused for being financially illiterate. Key can't be...he knew exactly what he was doing.

by powerupkiwi | 19th Nov 21, 9:30am 1637267447

1400% if it compounds

by HeavyG | 19th Nov 21, 9:40am 1637268034

You obviously don't have a large mortgage. I have a $1m mortgage floating in January and it looks like my interest payments will increase by $400 per week. Higher interest rates makes it harder on borrowers to pay the bills while also slowing house price growth (and potentially resulting in house price drops).

by Amokk | 19th Nov 21, 1:20pm 1637281259

= AWESOME

Finally might see some sanity prevail

by Averageman | 19th Nov 21, 1:28pm 1637281685

So for the heavily in debt, a swing to negative leverage...

by itsme | 18th Nov 21, 7:43pm 1637217803

Every body except the experts at the reserve bank knew when interest rates were near zero and when quantitative easing was introduced, then inflation was sure to follow!

by ikimpaul | 18th Nov 21, 4:14pm 1637205279

ANZ and BNZ will probably go tomorrow and then they'll draw straws on who gets to go first next week

by fortunr | 18th Nov 21, 4:15pm 1637205307

The growth of the 2-year swap rate looks almost exponential. The greatly overdue Interest rates normalization is finally starting to eventuate.

by MisterB | 18th Nov 21, 11:12pm 1637230377

Last time it was this high, retail rates were 4.8%, so still some pain to go it seems.

by CapitalNone | 18th Nov 21, 4:24pm 1637205884

The term "more than expected" has become synonymous with the term "RBNZ forecast"

by Noncents | 18th Nov 21, 4:17pm 1637205465

Amazing.

Mortgages rates increasing.

Savings rates flat.

Looks like more record profits next reporting period.

by company of heroes | 18th Nov 21, 4:46pm 1637207210

Saving rates likely to increase after RBNZ's Nov announcement. This is just a pre-show.

by MisterB | 18th Nov 21, 11:12pm 1637230329

Have you been watching TD rates? They've also increased.

by Roark78 | 18th Nov 21, 4:21pm 1637205699

Giddy up horsey! This is going to be fun

by Carlos67 | 18th Nov 21, 4:32pm 1637206358

Yep it's off to the races. TD rates will follow as well. No idea what the RBNZ are going to do now the banks are already moving without their directive.

by frazz | 18th Nov 21, 4:51pm 1637207466

TD rates will not follow..fiat game is up

by Trickledown | 18th Nov 21, 4:54pm 1637207666

They already have and are... Just not enough vs. lending rates.

by frazz | 18th Nov 21, 5:46pm 1637210761

Add inflation to the mix and they are going backwards

by jeremyr | 18th Nov 21, 4:36pm 1637206566

Yep. Interest rates comprise three basic components. Inflation, risk, and then a return. Inflation is at 5+ percent. A risk and return component must be added on top, which what the banks are doing. They are going to end up 7-12% easy.

by Yvil | 18th Nov 21, 5:55pm 1637211348

It's incorrect to add a risk premium to inflation to figure out interest rates.

Inflation + risk premium is not how banks price interest rates

by stacking_cheddar | 18th Nov 21, 11:32pm 1637231542

I suspect this is a semantic wormhole, but please expand. How do banks price interest rates?

by Yvil | 19th Nov 21, 10:20am 1637270457

Banks price interest rates based mostly on swap rates + their margin, the OCR also has an influence on the retail bank interest rates but mostly for the shorter terms, generally up to 2 years.

PS: It's not semantics, it's economics

by Independent_Observer | 19th Nov 21, 7:58am 1637261907

You clearly don’t work at a central bank! Interest rates have to be less than inflation or the debt bubble and economy explode.

by napierboy | 18th Nov 21, 4:28pm 1637206127

So on the figures they provided in article, a person paying off a $500k mortgage at today's rates vs the rates 20 weeks ago would have seen a 25% increase in mortgage repayments. How is this reflective of the current inflation rate of a tad under 5%???

by ikimpaul | 18th Nov 21, 4:31pm 1637206282

Its not but its very much inline with how much that"said person" overpaid on that house last year

by Carlos67 | 18th Nov 21, 4:36pm 1637206568

Nobody overpaid on a house last year it was a bargain 12 months ago.

by Yvil | 18th Nov 21, 4:56pm 1637207809

Very true!

by muzled | 18th Nov 21, 4:57pm 1637207848

It's a bargain today...

by DTRH | 18th Nov 21, 5:59pm 1637211566

At this point you are correct but give it 4-5 months you would have over paid get out quick to be a winner

by Yvil | 18th Nov 21, 7:46pm 1637217962

Many have been saying this for the last 30 years, they are now bitter and poor...

by DTRH | 18th Nov 21, 10:09pm 1637226593

Not rocket science sell high a top which is where we are now buy back in once slump is over. If you sit some where for 30 you will make money but a lot less.

by Yvil | 19th Nov 21, 10:17am 1637270243

That's also what a lot have been saying over the last 30 years "we're at the top now"… they have been unable to re-enter the market as it took off… yet again

by Averageman | 19th Nov 21, 1:49pm 1637282956

Anyone that bought a house 12 months ago via mortgage doesn't own that house. The bank does.

What you do have is a contract to makes you the banks profit slave via mortgage. Payments include an interest component. A component that is rising quickly. Also worth noting that at the artificially lows rates of 2020, an increase of 1-2% from a 3% base is a big difference to what you actually pay. This difference is less as noticeable as a 1-2% increase from 7% base. Interestingly a 6-7% base is looking more and more likely every day.

by Trickledown | 19th Nov 21, 2:30pm 1637285459

Your point is correct that there is a large interest component to a mortgage over the total term but can you really hand-on-heart say you'd rather pay someone else's mortgage for your entire life (at NZ rents)? You can't deny the security and stability that owning your home in retirement provides. Over-paying for a piece of crap at high DTI ratio is another matter and is risky though.

by Cowpat | 18th Nov 21, 4:47pm 1637207279

The " influential" survey of 35 professional forecasters and business leaders, who also throw in the housing forecasts, seeing through their teal leaves the HPI rising by 5.06 percent over the coming year and on average 3.72 percent over the coming two years. Slightly below their previous, although the 35 forecasts span a fall of -10 percent a nd a rise of 20 percent year on year.

by bw | 18th Nov 21, 4:36pm 1637206596

"That difference is now $506 per month " after tax.....Orrsome, is all I can say.

by Carlos67 | 18th Nov 21, 4:39pm 1637206794

As long as the banks did the stress testing at 6% its not a problem. Of course the punters didn't really think at the time that although you can survive the fun money left over takes a big dive.

by Pacman_46 | 18th Nov 21, 7:19pm 1637216347

Their stress is about to be tested alright!

by Fluffybunny | 18th Nov 21, 10:08pm 1637226524

That's a bit bite for a few people. 500 weekly for an average family?

Still, lots of mixed housing sections will still be selling for mid-1s regardless.

Jan/Feb will be interesting.

by Pragmatist | 18th Nov 21, 10:22pm 1637227347

Monthly, not weekly.

by GV 27 | 19th Nov 21, 6:59am 1637258384

"No problem" sure bro just the total collapse of discretionary spend and any businesses that rely on it. "No problem" at all.

by rastus1 | 18th Nov 21, 4:37pm 1637206643

We've had the asset inflation, now its the turn for the consumer goods.

We wont get wage inflation, so watch the value drawn from assets to fund the necessities.

by bw | 18th Nov 21, 4:42pm 1637206977

"Heartland says it's the first time the (Reverse Mortgage) limits have been increased since 2004."

The time for borrowing against asset value was....yesterday. And today is probably going to be better than tomorrow.

"Better 3 hours too early than a minute too late"

by hum | 18th Nov 21, 7:18pm 1637216286

what a horrible world would that be but i think you might be right

by Pragmatist | 18th Nov 21, 10:24pm 1637227449

We are getting wage inflation, just not everywhere. Its the poor/low income that are getting crushed.

by rastus1 | 19th Nov 21, 11:19am 1637273970

Wage inflation below 2.5%

by gnx | 18th Nov 21, 4:39pm 1637206783

“While there was low unemployment and most people would be able to adjust, and banks had been testing affordability at 6 or 7 per cent, he questioned whether borrowers had really thought about what it meant to their budgets.”

most have been focused on their gains.... classic!

by Carlos67 | 18th Nov 21, 4:41pm 1637206904

Exactly they are now asset rich and cash poor.

by CWBW | 18th Nov 21, 4:41pm 1637206910

I think banks should pay their customers for breaking a mortgage for a lower rate to re-fix on a higher one.

As always, only the banks can make money when you deal with them.

If I'm in the market right now for financing, I'll be looking at non banks and alternative financiers.

by General Comment | 19th Nov 21, 7:46am 1637261200

Breaking low to go higher generally only costs an admin fee. In my case, it was $20 through ASB. Given I was moving to 3.19% for 5 years, and the original end date was late last month, I was more than happy to pay it.

by Averageman | 19th Nov 21, 1:51pm 1637283119

Yes $20 fee, the house always wins. Don't 2nd tier/alternative financiers all charge higher rates to reflect the higher risk?

by AJ123 | 18th Nov 21, 4:46pm 1637207172

Will Orr help to give it a nudge next week?

by EpsomArtsandCrafts | 18th Nov 21, 5:10pm 1637208649

Whooh the bank profit margins are going to be even higher - great business to be in

by hum | 18th Nov 21, 5:12pm 1637208752

can't wait for the 6+

by Averageman | 19th Nov 21, 1:53pm 1637283183

Agreed.

by CapitalNone | 18th Nov 21, 5:30pm 1637209849

I guess Banks hike their rates quickly on the way up - and slower on the way down, just like Petrol Stations when price of oil changes.

Since some people may not have even experienced an OCR increase I guess many will have thought it would be same speed on way up as down and are going to be very suprised when they come to refix

by MisterB | 18th Nov 21, 11:16pm 1637230606

This is about swap rates - which have increased much faster than retail rates - and not the OCR. Might pay to understand how fixed rate loans are hedged.

by DTRH | 18th Nov 21, 5:40pm 1637210402

It’s going to be tuff for people with million dollar mortgage.if you have made money get out quick before negative equity kicks in and your there for years paying huge debt.

by Theoracle | 18th Nov 21, 8:48pm 1637221717

Get out quick?

by JimboJones | 18th Nov 21, 7:02pm 1637215359

Seems to be a risk now of the classic “reserve bank arrives at the party too late and stays too long”. Obviously the market is pricing the OCR to go up a lot, I’m not sure that would be so good.

by Carinaz | 18th Nov 21, 7:51pm 1637218305

David Chaston, why banks or anyone is worried about inflation. Trust Mr Orr who has asserted that inflation is transitory and is saying this since last July so definitely after four quarters - transitory will kick in and next quarter will be normal as was suppose to be transitory unless RBNZ was lying.

by Let me be Frank | 18th Nov 21, 8:17pm 1637219871

The great resignation....average property in NZ has 'earned' around 180,000 in the past 12 months....median employment remuneration previous 12 months 56,000 (less tax)....sustainable??

by ozzzy2 | 18th Nov 21, 8:53pm 1637222025

So we can expect to see another round of panic buying again..lol.

by EpsomArtsandCrafts | 18th Nov 21, 9:09pm 1637222955

Reminds me of the 80s when you would buy something at a low price (similar to cheap money) then every week put the prices up until it sold (make a loan) and make massive profits

by waymad | 18th Nov 21, 9:12pm 1637223128

And so our watch begins....with popcorn.

by Squishy | 19th Nov 21, 5:14am 1637252079

Should I be shocked that now the pandemic is effectively over, although government seem intent on trying to squeeze another six months out of it, rates and economic performance are returning to pre-pandemic levels?

The inability to suppress wages by importing low cost labour is accelerating inflation but I have no doubt that once borders reopen tens of thousands will book flights.

by nickp | 19th Nov 21, 7:17am 1637259459

This is rear of missing out on the low interest rates that is causing this rapid spike.

People will be trying to fix in droves causing a demand spike this causing a rapid increase in wholesale prices.

With prices of essentials also going up, demand for certainty on mortgages rates will accelerate the drive to fix as it's one thing consumers can control with a shrinking budget.

by alittle | 19th Nov 21, 7:51am 1637261491

Does anything matters to people in power...be it inflation.....housing ponzi, as is now not is a problem for FHB but even those who want to rent as rent in Auckland has gone up from 10% to 25% ( A colleagues who was renting for $620 moved house and the same house was re rented for $785).

Government and RBNZ has created a situation in which many average families will struggle for the rest of their lives ( giving dole is not a solution but a tool used by Jacinda Arden - giving $20 extra is to silence ....possible ....)

RBNZ for once should think rationally and take bold move, may be stock market or housing market may react for a short term but if Mr Orr misses this opportunity for........

Below is happening even now, how long will they keep lying that is softening or.......

https://www.stuff.co.nz/life-style/homed/real-estate/127026678/profits-…

by Averageman | 19th Nov 21, 9:49am 1637268565

Agreed. Business in Auckland are going to have to fight tooth and nail for staff, or pay them massively more just to support the ponzi rent and mortgagaes. Smart businesses will be growing staff in other locations and teleworking their Awkland workloads.