ASB hikes mortgage rates

In another sign that mortgage rates are rising despite the Reserve Bank's Official Cash Rate (OCR) remaining on hold, ASB and Bank Direct raised 18 month, two, three, four and five year mortgage rates on Friday morning by between 10 and 50 basis points (bps). Variable, six month and one year rates remained unchanged.

The move may disappoint politicians and the Reserve Bank, which have argued the banks could have cut some shorter term mortgage rates more over the last year as the Official Cash Rate was cut from 8.25 per cent to 2.5 per cent. The Reserve Bank had also hoped to stave off increases in mortgage rates by promising to keep the OCR at or below 2.5 per cent until the latter half of 2010.

If other banks follow ASB, the increase in the mortgage rates that most homebuyers use could dampen any housing recovery likely to coincide with a rush of new listings in the spring. ASB's economists released a survey today showing most home buyers now expect house prices to rise and many expect interest rates to rise.

ASB raised its 18 month rate by 10 bps to 6.1 per cent; its two year rate by 30 bps to 6.55 per cent; three year by 50 bps to 7.45 per cent; four year by 40 bps to 7.95 per cent; and five year by 30 bps to 8.3 per cent.

The new two, three, four and five year rates are now the highest standard mortgage rates for a bank in New Zealand. BNZ is offering an 18 month rate of 6.19 per cent.

Bank Direct's 18 month, two, three and five year rates were raised by the same amounts and sit 5 bps below the corresponding ASB rates. Bank Direct do not offer a four year rate.

www.interest.co.nz