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Mounting pressure for many households

Rob Stock rob.stock@stuff.co.nz

Westpac has followed ASB’s lead, and edged up its short-term home loan rates, while dropping its longterm rates.

The move follows Stats NZ’s revelation that inflation remained stubbornly high at 7.2% in the three months to the end of December.

Westpac lifted the interest rates on new six-month, 12-month, 18-month and two-year fixed term home loans by 10 basis points, while dropping its four-year rate by 10 basis points, and its five-year rate by 30 basis points.

Westpac’s one- and fouryear fixed term home loan rates are now 6.59%, more expensive than its five-year fixed rate of 6.49%.

This has resulted in what economists call an ‘‘inverted yield curve’’ at the bank where its longterm interest rates are lower than its short-term interest rates.

Many households with mortgages are facing higher repayments when they come to refix portions of their home loans as they come to the end of their fixed terms.

Reserve Bank Te Pū tea Matua data shows at the end of December 2020, the average interest rate on a new ‘‘standard’’ two-year fixed rate home loan at a registered bank was 3.51%, compared to 7.08% at the end of December last year.

Despite inflation remaining stuck on 7.2% in the last three months of 2022, economists see signs of inflation easing, and now expect the Reserve Bank Te Pū tea Matua will have to raise the official cash rate (OCR) less than they previously thought.

Michael Gordon, Westpac chief economist, writing the day before Westpac’s latest home loan repricing, said: ‘‘We have revised down our forecast for official cash rate hikes from the RBNZ. We now expect a 50 basis point rise in the OCR at the February policy meeting. Previously we expected a 75bp rise.’’

The bank expected a further 50 basis point rise in April, he said. That would take the OCR to

5.25%.

The OCR influences the cost of shorterterm funding for banks, and as a result, the price they charge for their loans. Wesptac is forecasting ‘‘mounting pressure’’ on households as rapid increases in consumer prices squeezed households’ purchasing power, and borrowing costs increased.

Gordon expected inflation to stay at over 6% through the first half of the year.

‘‘Around half of fixed rate mortgages will come up for repricing within the next 12 months,’’ Gordon said.

‘‘In many cases, borrowers will face refixing at interest rates that are 3 percentage points higher than those they are currently on. ‘‘Those financial pressures, along with the related downturn in the housing market, will be a significant drag on demand and inflation over the coming year.’’ Westpac’s mortgage rate move was less aggressive than ASB’s. While Westpac only raised its one-year home loan rate to 6.59%, ASB lifted its one-year fixed rate to 6.84%.

The two banks now have the same five-year rate.

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2023-01-28T08:00:00.0000000Z

2023-01-28T08:00:00.0000000Z

https://fairfaxmedia.pressreader.com/article/281998971592081

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