Source: Radio New Zealand
Westpac says it is increasing its home loans over two- to five-year terms by 30 basis points. 123rf
Wholesale rates are getting the blame for the fact that two weeks after the official cash rate was cut, one major bank has increased some of its fixed-term home loan rates.
Westpac said on Tuesday it was increasing its home loans over two- to five-year terms by 30 basis points.
That takes a two-year fix to 4.75 percent.
At the same time, it is reducing its six-month rate by 20 basis points, to 4.69 percent.
Before the latest OCR decision, wholesale markets had virtually priced in one more cut.
So when the Reserve Bank indicated it thought another cut might not be needed, wholesale rates ticked up.
Westpac said wholesale rates were 40 basis points higher than they were the day before the OCR announcement.
Infometrics chief executive Brad Olsen said there was a chance that the wholesale rate increase was a bit of an overreaction.
“You look before the Reserve Bank’s announcement in late November, you know, markets were keen on another cut. Not fully, but leaning in that direction. Then with the Reserve Bank’s nonchalant, through-the-middle view of ‘look there’s not probably a lot left in the system’, which is not too dissimilar to what they said before, markets have gone ‘oh it’s time to start thinking about the up’. It does seem like a bit of a reversal of position there. I do worry a bit that the markets have shifted pretty quickly from one to the other.”
He said people might be confused that the OCR had fallen while retail rates had risen, but there had never been a direct correlation. “We’re now at the turning point where you’re starting to see adjustments across the board.”
It would be interesting to see what other banks did, he said. “Does everyone follow because they’re facing the same sort of pressure but no one has moved yet? Or do you see a few banks go well actually maybe I have to make an adjustment but maybe not the full adjustment because then I drive a bit more of a wedge between me and other offers. It’s not clear what it means for the entire market yet.”
It had been noticeable that there were not major rate movements before the OCR, he said.
There may still be room for banks to absorb some increase on wholesale margins.
The main banks have a net interest margin of about 2.4 percent or 2.5 percent, roughly the same as they had a year ago but higher than the 2.1 percent KPMG reported them having in 2019.
Simplicity chief economist Shamubeel Eaqub said it could mean a “rubbish” Christmas for retailers if people were worried about rates rising again, and the Reserve Bank might have to cut again in February. He said other banks would probably follow. “The great mortgage war taught them not to compete on price – no changes in market share and a drop in profits.”
Commentators have been saying for some time that it could be worth considering a longer-term home loan fix because rates might be about as low as they would go.
Late last month, ANZ’s economists said it was too soon to say with confidence when rates might start increasing.
“The key point for now is that wholesale rates have stopped falling. Competition is clearly hotting up, with banks offering cash incentives to switch and that will be welcome news to borrowers,” they said.
“But when it comes to which term to select, our broad thinking remains as it was a month ago: we believe mortgage rates are likely at or near their lows, and that it is thus worth considering longer terms. With very little separating rates spanning from one to five years, borrowers with differing levels of risk appetite should be able to find a term that satisfies their own cost/certainty trade-off sensitivities.”
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– Published by EveningReport.nz and AsiaPacificReport.nz, see: MIL OSI in partnership with Radio New Zealand
