Home loan rates harden

Home loan report: The notable trend in the homeloan market over the past week has been the hardening of rates over terms of three and five years.

Wednesday, October 10th 2007, 7:05AM

by Maria Scott

Several lenders have increased rates over these terms, reflecting increases in the cost of raising funds in the wholesale markets.

There have been some reductions in one year rates but overall market signals point toward continued pressure on interest rates.

The results of a business confidence survey released today by the Institute of Economic Research suggest that the New Zealand economy is still performing strongly despite four recent increases in the Official Cash Rate. The Institute found in its latest quarterly survey of business opinion, that more than a third of companies expected to put up prices.

Lenders have seen the cost of wholesale funds increase by more than 10 basis points for terms of two-years plus over the last week, reflecting higher funding costs in international markets.

Westpac market strategist Michael Gordon notes in a bulletin released today that New Zealand interest rates have rebounded strongly from their mid-September lows, with some short term rates approaching earlier highs. The global credit squeeze has moderated surprisingly quickly, says Gordon, although he also says that there is a lingering risk of relapse.

BNZ is among lenders that have reduced one-year rates recently although a comparison of the bank's new rates with those of other lenders do not suggest that its re-pricing is an attempt to start another price war. BNZ has increased rates on its three year terms for standard and Global Plus loans.

Kiwibank launched a Spring marketing campaign last month with a cut to its three year rate and cuts by some other lenders have followed. However, the competition on pricing appears to be muted compared with the frenzied activity of recent years. BNZ 's chief economist Tony Alexander says that this year's Spring round of cuts looks to be over and he would not postpone fixing. His recommendation is to fix over two or three years.

The lowest two year rate in the market now, according to a comparison on Good Returns, is 8.80% from Wizard Home Loans, following by 8.95% from Kiwibank. Over three years, Kiwibank is cheapest at 8.60%, followed by TSB Bank, Westpac and PSIS at 8.75%.

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