ASB is the latest major bank to raise fixed rates on home loans. They trail Westpac which raised some rates yesterday – which in turn trailed ANZ, and in that round was led by The limited movement of Kiwibank May 30, 2022.
But with new levels of mortgage applications at unusually low levels, and the mortgage market now mostly spinning with renewals and refinances, it’s now a game of “protecting your market share” for banks, rather than a “market share growth” game.
And new pricing tends to reflect this, with offers for most terms settling in very narrow bands.
BNZ is the latecomer to this round, still with its unannounced changes. They will probably come very soon. And they too will probably settle at levels very close to their main rivals.
A wildcard in this environment is the “cash back” incentives available. The recent expansion of Kiwibank at a 1% offer for loans over $300,000 raises the stake from the previously agreed cashback incentive level of 0.7%. Kiwibank also pushed the maximum to $10,000. But they maintained strict recovery conditions. Even so, Kiwibank’s expansion will force competitors to match them when pressed, and banks will work hard to find other margin protection strategies.
But generally, as Fitch noted yesterday, banks like periods of rising interest rates. This is when they should be able to build back margins. However, we should note that the RBNZ Dashboard Data shows that banks’ NIMs (net interest margins) have not decreased. How much of this relates to their mortgage business is undisclosed, but since all major banks are now essentially “mortgage banks”, you have to assume that they have retained their mortgage margins well. Today, the big challenge for banks concerns the “volumes” of new transactions.
In the background, first it was the RBA, and overnight it was the ECB, either raising rates or signaling that their official key rates were rising. Tonight, a nice surprise from US CPI inflation could also put upward pressure on wholesale rates.
Our local wholesale swap rates (see chart below) have recently increased after taking a detour in the second half of May. They are back to those earlier levels and seem on track to push higher.
Banks are also raising interest rates on term deposits, but generally not at the same pace as mortgage rates. TD rate increases for terms that Kiwis are comfortable using (6-12 months) do not increase as rapidly as for some other terms. We will have more information on this in a separate analysis.
A helpful way to make sense of these home loan rate changes is to use our full function mortgage calculator which is also below. (Term deposit rates can be estimated using this calculator).
And if you already have a fixed-term mortgage that is not up for renewal right now, our break cost calculator can 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 currently offered by major retail banks.