Home loan rates start rising

Short-term mortgage rates are starting to increase following the Reserve Bank's decision to lift the Official Cash Rate 25 basis points to 6% last week.

Tuesday, August 3rd 2004, 5:40AM

Leading personal finance site Good Returns which monitors home loan rate changes is already picking up changes.

"The general view is that floating rates will rise the same amount to around the 8.25% mark," Good Returns editor Philip Macalister says.

After the Reserve Bank announcement small lenders ABS Canterbury and Silver Fern increased their floating rates.

ASB Bank was the first bank to move, however it has increased only its six-month and one-year rates on Friday.

Westpac was the second bank to make changes and its moves are far more sweeping and bigger. It has increased its floating rate, plus all its fixed rates from six months to three years.

Interestingly enough while it increased its standard floating rate 25 basis points the fixed rate moves were between 10 and 25 basis points.

Westpac reckons the change adds $24.05 to a monthly payment on a $150,000 mortgage on a 25-year term.

This latest RBNZ move means that floating rates are now into above average territory.

Over the past five years the floating mortgage rate has sat at 7.60%. Floating rates at 8.25% will be the highest since March 2001. (This is nothing compared to the late 1990s when the floating rate peaked at 11.25% in 1998 and in 1997 averaged 9.80% from 10.90% in 1996 and 10.80% in 1995).

While all the noise has been about the Reserve Bank's decision to increase the OCR - and what that will do for floating rates, one of the more interesting plays last week has been missed.

Early in the week HSBC dropped its two-year rate to 7.29% although no-other lender was moving their rates. Why?

"A good guess is that the bank was making a tactical play in response to Superbank entering the market and offering a "below the line" rate for 21 months of, you guessed it, 7.29%," Mr Macalister says.

"The HSBC move is interesting as we have seen before the bank is prepared to play tactical games to pick up business," Good Returns editor Philip Macalister says." Also it is a clue that Superbank will be a player to watch."

What's the best deal at the moment? Two-year rates are still considered the best option but the cost of funding them is rising.

BNZ's Tony Alexander says that the wholesale cost of two year money was 6.24% three months ago, it rose to 6.5% just over a week ago and is now at 6.66%. Last week Loan Plan lifted its two-year rate to 7.40%

To monitor all the mortgage rate changes as they are announced go to http://www.goodreturns.co.nz/section.php?CategoryID=200

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