The Bank of New Zealand hasn’t done anything normal in the home loan market for many years; and it doesn’t seem to have changed its ways recently.

The bank created headlines a number of years ago with its “Unbeatable” campaign. During this campaign it was the market leader pushing fixed rates, particularly in the two year space, down.

Part of the driver for the campaign was its decision not to distribute its home loans through mortgage brokers, even though brokers grew to control 40% of the market.

The logic for this move was from what you could call a domestic between the bank and brokers where it wouldn’t allow them to sell its popular Global Plus loan product which offered borrowers Air New Zealand Airpoints dollars.

Since then the bank has relied on its own mobile managers and branch staff. It claimed that these channels of distribution were more cost effective than brokers.

Well how things change. Last week all the chatter during the tea breaks at this year’s NZ Mortgage Brokers Conference in Wellington was about BNZ sacking all its mobile managers.

The bank has confirmed this to Mortgagerates.co.nz, but the reasoning is not so clear.

One of the theories is that the bank may replace its mobile managers with brokers. A second is that the bank’s parent, National Bank of Australia, has just bought the Challenger mortgage business. Challenger owns a group called PLAN which operates in New Zealand.

Maybe the bank will use all the PLAN brokers instead? However, PLAN says that isn’t part of the plan.

The question is what does BNZ intend doing in this space? For years it has aggressively chased market share, and its mobile managers are a key part of that programme.

The answer appears to be that BNZ is pulling back in the home loan market and will leave it to the other banks to fight for business.

It does seem an odd move. One thing that borrowers which seems likely is that the bank won’t be out there leading the market down with its rates. Or maybe it will be super-aggressive in cutting its rates to get customers into the branches?

The trend and the message in the changes to home loan rates in the past week have been clear and a little worrisome for borrowers.

As reported for terms of 18 months or more have risen, and the rises for three and four-year money have been steep. In many cases more than 50 basis points.

Shorter dated money rates have generally stayed static, however market leader Kiwibank and one of the building societies have cut their floating rates in the past week. (BNZ also made a cut to one of its loan products, Total Money, however Total Money is part of a product which includes some other elements. For this reason I don’t include it as a “standard” rate).

To see how the interest rate curve has steepened check out this graph showing Kiwibank’s new rates versus its earlier ones.

The worry is that short-term rates, while attractively low, aren’t going to stay around these levels forever. At some point they will start rising and when you look at the height of medium and short-term rates these increases could be a significant whack.

Borrowers who currently have their home loans of maturities from floating out to one year, will need to be watching what’s happening closely and reviewing their strategy.

One option to consider is leaping in and fixing some of your loan for a longer term – unfortunately the time to do that has, arguably, passed. While the three-year fixed rate is just below its average for the past five years, longer durations are now above their five-year average.

We will be watching these longer-term rates with interest to see if they have gotten too high. They have increased, mainly, because there are growing signs of economic recovery in offshore markets – particularly the United States.

However, there is no guarantee this pick-up will be a long-term constant trend. Indeed, many economists expect there to be hiccups to the economic recovery along the way. When these come there is a chance funding costs for home loans will drop back.

If this happens they may only be temporary and will give you small windows of opportunity to fix.

However, I wouldn’t bank on it as a strategy.

After many weeks of home loan rates remaining unchanged we have a movement. Today New Zealand’s newest bank, SBS, raised its six-month and one-year fixed rates by 10 basis points.

Now the increases aren’t big, nor do they put SBS out of the market in a competitive pricing sense. You can see here that with six-month and one-year rates of 5.60% and 5.70% respectively, they are some of the cheaper rates on offer.

However, they do break a drought. It’s not often we go for more than a month with no changes to home loan rates.

The significance of the change is that it is at the short end of the market, the terms that many home owners and property investors are currently using.

Now that someone has moved, attention shifts to whether other lenders will see this as an opportunity to follow suit and lift their rates too.

There is a strong possibility this will happen, but countering that argument is that SBS is a small player in the market and its influence may be less than if the changes were made by a big, High Street bank or Kiwibank – which often leads the market with changes.

No doubt the move will attract attention from fellow rate watchers who may well argue the hike in rates is unjustified as wholesale rates in these terms have traded within the current range for quite some time. Their argument will be that here we go again, banks ripping off the poor Kiwi borrower.

I have sourced a couple of graphs from ASB which show that the 90-day bill rate has remained pretty static over recent months and the official cash rate has flat-lined at 2.50%.

However, a look at various other swap rates shows that they have gradually been drifting upwards over time.

One of the more likely reasons that SBS has raised its rates is to do with the weighted average cost of its mortgage book. While short-term funding is pretty cheap at the moment, replacement funding banks are getting for their long-term money is far more expensive than before.

What is clear is that the home loan market is quite complicated at the moment and there are significant shifts taking place. This graph illustrates that although rates came down across the whole yield curve in the past year and became much cheaper than before, long-term rates are bucking the trend and heading upwards steeply.

This trend, plus a possible start of short-term rate increases presents a challenging situation for borrowers right now.