KEY POINTS:
Fixed-term mortgage rates have risen sharply in recent weeks as rates on wholesale money markets push higher on mounting expectations the Reserve Bank will again increase the official cash rate.
ANZ National Bank and Westpac have both increased two-year fixed rates from 8.5 per cent at the start of the month to 8.9 per cent.
ASB currently has a rate of 8.6 per cent up from 8.5 per cent while BNZ has the lowest published rate amongst the major banks of 8.42 per cent, which is still substantially higher than the "promotional" rate of 8.09 per cent it offered earlier this month.
Kiwibank currently has a two-year rate of 8.6 per cent but it is understood it plans to increase that shortly.
ANZ National said: "Wholesale rates have increased over the last two weeks and these changes reflect that".
Westpac said its latest increase of one-third of a percentage point to 8.9 per cent was "a reflection of where wholesale rates have gone and is in light of what our competitors are doing and the general state of the market". BNZ said its increase "reflects the increasing cost of funding these products".
Publisher of interest.co.nz David Chaston said the latest increases were probably related to increases in the two-year rates on the "swaps market" - the wholesale money market from which banks source much of their funding for fixed rate mortgages from overseas investors.
The increase in the cost of borrowing from overseas investors appears to have pushed up bank mortgage rates more than the Reserve Bank rate rise.
BNZ chief economist Tony Alexander said that with continuing positive economic data, the Reserve Bank is expected to raise the official cash rate again. "This is causing swap rates to push to their highest levels in many years and fixed mortgage rates are now getting into interesting territory for the bulk of borrowers."
Chaston noted that longer rates on the swaps market had risen faster than shorter rates which was forcing longer term mortgage rates higher.
Deutsche Bank chief economist Darren Gibbs said the rising rates on the swap market resulted from foreign investors stepping back a little from the New Zealand debt market, because they were less certain that the Reserve Bank would not raise interest rates again, making their investments worth less.
ANZ head of proprietary trading and investor sales Tony Allen said the recent fixed rate increases would slow the housing market.
