Westpac is first out of the blocks with Spring home loan rate changes, flattening its offering to be competitive for terms of 3 years and longer. TSB also trimmed some rates. But the background is rising rates

The spring real estate selling season is almost upon us, and the first bank out of the blocks with lower rates is Westpac.

In fact their new rates are flatter than any other bank, and lower than any main bank for terms three years and longer.

But they have raised rates for terms 18 months and shorter. They have left their two year rate unchanged at 5.45%, and the same as all their main rivals - except BNZ.

Until recently, most borrowers have fixed at 12, 18 or 24 month terms.

But recent rises and related volatility has brought the longer term rates front-of-mind for many borrowers whether they be re-financers or first home buyers. Insulating yourself from market volatility when the background economy seems unsettled seems like a good idea, and long term fixed rates do that.

No-one knows where market interest rates are heading - including officials - but the risks are now much higher that they could go up as much as down. That risk of much higher rates will help drive more borrowers to longer term fixed rates. Westpac's new offers seem to respond to that impulse.

Update: TSB has trimmed -4 bps from each of its 3, 4, and 5 fixed rates.

A check of the swap rates at the bottom of this article shows we have been in a period of steadily rising wholesale rates that started at the beginning of August. This is a trend that was been driven by global forces, especially the US Federal Reserve. Bond markets have come to accept that the Fed's will, will prevail here until the back of inflation is broken. It may take a long time.

The next Fed review is on September 22, NZ time, and financial markets are coming to accept that another 75 basis points rise is a live possibility. That means wholesale rates will face upward pressure even if the US faces growth challenges. The Fed has clearly signaled they are prepared to pay an economic growth price to get inflation back under control. If they don't their market cred will be shot.

And for New Zealand, that means we won't be able to avoid those upward pressures.

Locally, some look at the Funding for Lending Programme (FLP) and see banks can access that, probably for another $8 bln, all at the Official Cash Rate to be repaid within three years. It is likely more banks will take their full fill. But this opportunity runs out within 90 days. Further, markets have fully priced in two if not three more rate hikes in 2022, adding at least 1% by November 23 and possibly 1.25% to the OCR from now to February 23, 2023. That would take the 3.0% OCR to 4.25%.

It is hard to see how funding at this sort of level wouldn't raise rates. After all the current two year home loan rate is 'only' 5.45%. The FLP funding source wont be holding down retail home loan rates, they may in fact push them up.

They next time we get a Consumers Price Index reading will be on October 18. That is now only six weeks away. The best-case scenario is that inflation may have peaked in September with petrol prices having topped out. But the labour market remains tight, the NZ dollar is depreciating, and imported inflation shows no sign of abating. You would be brave to assume the September CPI will be significantly less than the June rate of 7.3%, so no relief in that department is on the horizon.

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 although break fees should be minimal in a rising market, they will start to bite in a falling 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 September 5, 2022	%	%	%	%	%	%	%
ANZ	5.15	4.99	5.29	5.45	5.69	6.85	6.95
	5.15	4.99	5.29	5.45	5.69	5.79	5.79
	4.99	4.95	5.49	5.39	5.69	5.89	5.99
	5.45	4.95		5.45	5.69	5.89	5.99
	5.05 +0.06	5.15 +0.20	5.35 +0.06	5.45	5.65 -0.04	5.75 -0.24	5.75 -0.34
Bank of China		4.85	5.09	5.19	5.39	5.59	5.59
China Construction Bank	4.99	4.95	5.29	5.45	5.69	6.85	6.85
Co-operative Bank [*FHB special]	4.89	4.79*	5.39	5.39	5.69	5.79	5.89
Heartland Bank		4.79		5.15	5.14
HSBC	5.04	4.89	5.09	5.14	5.39	6.09	6.19
ICBC	4.99	4.79	5.15	5.15	5.69	5.89	5.99
	4.95	4.89	5.35	5.29	5.49	5.79	5.79
	4.89	4.85	5.19	5.29	5.55 -0.04	5.65 -0.04	5.65 -0.04