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.
