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Even though rates are now at fifteen year highs, home loan borrowers should be anticipating further fixed rate rises, and quite soon for the next shift up


By David Chaston,

Home loan rates will likely rise soon. The key 2-year fixed home loan rate averages 6.93% among the five main banks, and is boosted somewhat by ASB's unusual 7.05% rate. But it seems unlikely that they will be left hanging up there for long. The one-year fixed rate average among these same banks is 7.23% and that may be where the two-year is headed. Interestingly, more recent borrowers are on the 1-year rate than the two year one.

And there are a large group of borrowers coming up for re-fixing who will be facing these new higher rates. A year ago the one year fixed rate was 5.11%. Two years ago the 2-year fixed rate average was 2.51%. In late 2023, both groups face sticker-shock.

Benchmark rates are high and rising


The current rates are now their highest since the GFC. And wholesale markets now have a full +25 bps priced in for another OCR rate rise sometime in the first third of 2024.

Local wholesale rates are high and rising


At about 5.7%, the two year swap rate ended last week at its highest since 2008. (Yes, it did spike one day in mid-July a few bps above that.)

Retail rates are high and rising


Retail rates paid to savers are important because most of the bank mortgage activity is funded from retail savers. Term deposit funding is only part of that savings base (one that includes current accounts and savings accounts), but the TD part is the most sensitive to rising rates. And savers are switching into term deposits now they are yielding much better returns.

Most term deposits are for six to 12 months. Four of the five main banks offer 6% for a one year term deposit. It won't be long before at least one major bank offers 6% for a term less than 12 months.

Current rate levels for savers are now also their highest since 2008.

Bank margins have fallen below a key point

Over a long period, banks have tended to keep the margin between the fixed rate offer and the wholesale money cost at about 160 bps (1.6%). But that has been tough to do in 2023 when mortgage demand has been tepid.


However, there is a low point where banks don't feel they can live, and when it is breached, the pressure is on to raise rates even if demand is low. ASB has been the first to respond to that, but others will be feeling the pressure. That 'breaking point' seem to be about 120 bps (1.2%).

With benchmark, wholesale, and retail funding costs all rising in 2023, and quite sharply very recently, it isn't hard to conclude that fixed home loan rates will be rising again soon.

This story was originally published on and has been republished here with permission.