ASB hikes fixed mortgage rates as borrowers snub floating rates

ASB has hiked mortgage and term deposit rates. Photo / Dean Purcell

ASB is hiking mortgage rates again, targeting terms proving popular among borrowers.

The bank is lifting its one-year and 18-month rates by 20 basis points to 7.45 per cent and 7.15 per cent respectively.

Meanwhile, it’s raising its two- and three-year rates by 16 points to 7.05 per cent and 6.85 per cent respectively.

The hikes come as new Reserve Bank data shows one-year fixed remained the most popular type of mortgage taken out in July.

Meanwhile, 18-month and two-year mortgages rose in popularity at the expense of three-year and floating mortgages.

Relatively attractive interest rates saw three-year mortgages rise in prominence in June.

However, the popularity of the term dropped back in July, as banks’ rate rises made fixing for this duration less appealing.

Borrowers also appeared deterred by rising floating rates, which hit the 8.59 per cent mark in July.

The lowest portion (18 per cent) of new mortgage lending since at least April 2021, when the Reserve Bank’s data series began, was floating in July.

This portion sat at 24 per cent in February when rates were expected to fall sooner than they are now.

All banks have been lifting mortgage and term deposit rates in recent months.

Kiwibank made a number of changes last week, for example. Meanwhile, ASB is also increasing a range of term deposit rates by up to 25 basis points, meaning savers can earn interest of up to 6 per cent.

While the Official Cash Rate (OCR) has been on hold, at 5.5 per cent, since May, banks say they’ve been hiking mortgage rates in response to rising wholesale rates.

The interest rates banks pay to borrow money from other financial institutions around the world have been elevated, as investors have been betting on central banks needing to keep interest rates higher for longer to curb inflation.

An ASB spokesperson recently told the Herald: “Over the past two years, wholesale interest rates have increased significantly, and we have not increased our fixed home loan rates in line with these increases.”

Opinion is divided over what interest rate strategy mortgage holders would be best placed to apply.

ANZ interest rate strategist David Croy believed there was so much uncertainty, borrowers would be well served hedging their bets by fixing at a range of durations.

He worried inflation might remain sticky for some time, requiring higher rates for longer.

Independent economist Tony Alexander had a different view.

He believed slower-than-expected growth in China, which is lowering the price of New Zealand’s dairy exports, would dampen the New Zealand economy to the extent the Reserve Bank would have to cut the OCR sooner than it suggested in its August Monetary Policy Statement.

The Reserve Bank said there was a slight chance it would hike the OCR again, before cutting the rate in early-2025, rather than late-2024, as it previously expected.

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.