In the last few months (since the first-rate hikes in the middle of the year) we’ve seen numerous clients opt for fixing their mortgages, and in many cases fixing for the longer term (3-5 years). This of course isn’t advice, and there is most certainly not a one-size-fits-all model, however it has become increasingly apparent that borrowers are now more and more aware of the direction interest rates are going – and are in a position where they want to lock in some certainty in the coming years. This is a very different sentiment to the one borrowers had 12 months ago, where in many cases they would simply chase the lower rate.

Looking at the spread of interest rates in the table below, you can see rate increases across most banks between the one to three-year terms. SBS certainly still seem to be the most competitive in many of the interest rate terms, but recently they too have increased their rates.

As the OCR was recently increased to 0.50% (from 0.25% – the first increase we’ve seen in a while) some bank floating rates have certainly crept up – including the special promotion products of ASB, Sovereign and ANZ (Back My Build and Blueprint to Build – respectively). It’s important when using these products to understand that they are floating rates, and you’ll want to be aware of the fact they can change – and in the current environment that likely direction is upwards.

Swap Rates

In mid-October we have seen swap rates increase which have been driven by an unexpectedly large rise in the CPI. We saw the largest one-day rises in the one and two-year wholesale swap rates since ’07. These indicate that the market has already priced in a further increase to the OCR in the November (24) OCR review. As a result, it is very possible (particularly with signals from the RBNZ) that rates will continue to rise at least in the short term.

In an increasing mortgage rate environment, particularly with some of the inflation stats we’ve recently seen, I would highly recommend reviewing 4.22your position and ensuring you have a firm understanding of your capacity to make higher mortgage repayments in the next few years. If this isn’t something you’re prepared to cope with, my suggestion would be getting certainty now, rather than later.

It wasn’t long ago you could get a five-year rate at 2.99% from almost any bank – which is similar to some bank’s one-year rates at the moment. As a result, many have missed the boat with certainty, so I’d suggest reviewing things sooner rather than later.