Three banks raise fixed mortgage rates

The big banks' recent and aggressive battle for mortgage market share looks to be fading with at least three bumping up their two-year fixed rates.

BNZ and National Bank have hiked their two-year fixed rates to 7.6 per cent. ASB Bank's rate for the same period is now 7.7 per cent.

The big banks had previously offered two-year fixed rates at about 7 per cent, with some as low as 6.95 per cent.

The move towards higher rates apparently brings to an end the two-month battle for market share in the fiercely competitive home loan market.

Market watchers said the banks' interest rate war was also an attempt to rejuvenate the slowing housing market, which has pushed the domestic economy along at a break-neck speed over the past two years.

At the Reserve Bank's December 9 monetary policy statement, governor Alan Bollard put a shot across the bows of the mortgage market.

He warned that further rises in the official cash rate -- currently at 6.5 per cent -- could not be ruled out next year, dashing earlier expectations that it might dip towards the middle of next year.

Dr Bollard said that if banks increased their profit margins to more normal levels and global interest rates rose more than expected, the lowest rates in the market "would rise toward 8.5 per cent by the end of 2005".

In mid-November, Deutsche Bank chief economist Ulf Schoefisch said it was unlikely the low fixed-term rates were sustainable for banks, which had their eye on profit margins.

"We don't share the view that the current mortgage-rate war could reignite the housing market," Dr Schoefisch said.

- NZPA