KEY POINTS:
Major banks' recent mortgage rate increases are probably intended in part to rebuild profit margins eroded by competition rather than a pass through of higher funding costs as they claim, banking commentators said yesterday.
Over the past week, New Zealand's biggest bank, ANZ National, has raised rates for
fixed mortgage by about 0.2 percentage points, taking the key two-year rate to 9.6 per cent.
Westpac followed yesterday and experience suggests the other major banks will do the same.
The banks say they are merely passing on to customers the higher cost of money on wholesale markets because of the US subprime crisis.
But a similar move by ANZ in Australia, also citing higher wholesale funding costs, has been panned by Treasurer Wayne Swan as excessive.
ANZ's Australian rivals have also moved their rates higher, but by a smaller amount.
In New Zealand, the publisher of website interest.co.nz, David Chaston, said there was little evidence on the key interest rate swaps market, where banks raise money to fund fixed-rate mortgages, that the moves were justified.
Yesterday, Chaston conceded that he had not factored in the extra margin banks pay each other over and above the swap rate. He now understood that has been steadily rising over recent months from around 10 basis points to 30 basis points.
"But I don't think it has risen 20 basis points in the last two weeks.
"I'm sceptical that this is all cost- driven. I think there's plenty of room in this thing to suggest there is margin recovery here."
Massey University head of banking studies David Tripe said: "The key question is what has actually happened to the swap rates over the last month?"
Yesterday, the two-year swap rate which drives two-year fixed mortgages was at 8.58 per cent, down 10 basis points from 8.68 per cent on December 11 last year.
With the two-year swap rate at 8.58 per cent and two-year mortgage rates at 9.6 per cent, the banks were earning 1 per cent on that money.
"That certainly isn't a huge margin but it is better than they have enjoyed for much of the time over the last six months. So to some extent it could be reasonable to argue that they've got sick of operating on very fine margins and were trying to restore these to a more decent level.
"They are looking to recover a bit of margin but that doesn't mean to say that in general they suddenly decided they can get away with charging excessive margins. It's more a reflection of margins previously being perilously low."
Excessive or not, the recent moves are bad news for homebuyers. Those who took out loans two years ago and are due for refinancing face about a 1.6 percentage point increase in interest costs which could add almost $60 to weekly repayments on a $250,000 loan.