Westpac changes fixed mortgage rates

Spring home sales season is fast approaching and the first bank to offer lower rates is Westpac.

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

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

Until recently, most borrowers set terms of 12, 18 or 24 months.

But recent rises and the volatility associated with them have brought longer-term rates to the minds of many borrowers, whether refinancers or first-time home buyers. Insulating yourself from market volatility when the underlying economy seems unstable seems like a good idea, and long-term fixed rates do just that.

No one knows where market interest rates are going – including officials – but the risks are now much higher that they could rise as much as fall. This risk of much higher rates will help induce more borrowers to adopt longer-term fixed rates. Westpac’s new offerings seem to respond to this impulse.

A check of the swap rates at the bottom of this article shows that we have experienced a period of steadily rising wholesale rates which began in early August. This is a trend that has been driven by global forces, particularly the US Federal Reserve. Bond markets have come to accept that the will of the Fed will prevail until the back of inflation is broken. It can take a long time.

The Fed’s next review is on September 22, NZ time, and financial markets are coming to terms with another 75 basis point hike as a real possibility. This means that wholesale rates will come under upward pressure even as the United States faces growth challenges. The Fed has made it clear that it is ready to pay the price of economic growth to bring inflation under control. If they don’t, their market credibility will be shot.

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

Locally, some are looking at the Funding Loan Program (FLP) and seeing that banks can access it, probably for an additional $8 billion, all at the official exchange rate to be repaid within three years. It is likely that more banks will be fully satisfied. But this opportunity runs out within 90 days. Additionally, markets have fully priced in two or even three more rate hikes in 2022, adding at least 1% by Nov. 23 and possibly 1.25% to OCR by Feb. 23, 2023. This would raise the OCR from 3.0% to 4.25%. .

It’s hard to see how funding at this level wouldn’t drive rates up. After all, the current two-year mortgage rate is “only” 5.45%. The FLP funding source will not hold down retail mortgage rates, they may actually drive them up.

The next time we get a Consumer Price Index reading will be October 18th. There are only six weeks left. At best, inflation may have peaked in September as gasoline prices plateaued. But the labor market remains tight, the New Zealand dollar is depreciating and imported inflation shows no signs of abating. You’d be brave to assume September’s CPI will be significantly lower than June’s rate of 7.3%, so no relief in that department is on the horizon.

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 while breakout 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 currently offered by major retail banks.

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