Pressure on interest rates
Cheap interest rates could soon be harder to find.
Friday, February 22nd 2013, 2:41PM
by Susan Edmunds
Wholesale interest rate swap yields have been rising since the beginning of the year, putting pressure on banks to raise their interest rates.
The most notable wholesale rises have been in the middle of the swap curve, for terms between three and seven years.
Westpac chief economist Dominick Stephens said that for a while that rise had been tempered by a drop in the margin banks have to pay over the top of those wholesale rates.
An improving global financial situation had made overseas lenders more willing to lend to New Zealand, he said. “At the moment New Zealand is considered a fantastic bet so the margins have been coming down.”
But he said looking forward from today, the high wholesale rates might become more of a factor.
BNZ chief economist Tony Alexander agreed the wholesale rates would push up banks’ home loan rates. “Eventually it will happen but it depends on the degree of competition between banks and how they choose to manifest that.”
He said borrowers should keep an eye out for a cheap longer-term rate and fix half their mortgage if they found one.
Stephens said fixing was a better option than floating. “Our view is that the floating rate will go up enough in future to make paying a little bit more now worthwhile."
Rates up to two years are still cheaper than floating rates.
Stephens said most people were waiting until the Reserve Bank was on the verge of hiking the official cash rate to fix their mortgages. But he said with everyone employing the same strategy, a rush to fix would push rates up sharply. “If people en masse decide to fix, we will see a big increase in wholesale interest rates, much sharper than we’ve seen over the last few months.”
In December 2012, there was $96.6 billion of mortgages floating and $82.6 billion fixed, from $102.4 billion floating and $73.8 billion fixed in August last year.
Mortgage approvals in the week ended February 15 recovered sharply, to 7515 from 5838 the week before.
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The OCR ain't going anywhere
The new Reserve Bank governor, Graeme Wheeler, predicts that the official cash rate won't by going anywhere until 2014.
This is clear from the 90-day bank bill forecast graph in the December Monetary Policy Statement. It shows clearly how over the past year forecast increases kept getting pushed down each quarter.
A year ago the bank was predicting the 90-day bill rate would be up at 4.00% by March 2014. That forecast was wound back to 3.3% in March, 3.2% three months later and is now down at 2.8%.
The good news for borrowers is that, asssuming things pan out as forecast, then home loan rates aren't likely to be going up any time soon either.