Expected October interest rate hike may not fully flow to mortgages until April

Monday, 30 August 2021

Reserve Bank governor Adrian Orr voiced concern in August about the situation recent home buyers might soon be in, and since then prices have risen rather than fallen. (Video first published August 19, 2021)

The Reserve Bank has released researched suggesting it typically takes six months for increases in the official cash rate to have their full effect on mortgage rates.

The bank has said borrowers start to feel the impact of rises in the OCR within a month, but that then rose over time, before dropping.

Based on past movements in mortgage rates, the central bank has calculated that a 1 percentage point change in the OCR typically results in the average two-year mortgage rate rising by 0.34 percentage points (34 basis points) within one month.

But six months later, that increased to 80 basis points.

Bigger banks and those that fund more of their lending from NZ depositors tend to be slower to pass through rate rises, Reserve Bank research suggests.

* ANZ reverses home loan interest rate increases

* Adrian Orr: Decision to hold official cash rate 'literally down to the uncertainty of the day'

Reserve Bank governor Adrian Orr has signalled that the bank is minded to raise the OCR in mid-October, so the research suggests the full effect of that might be felt in April.

“Individual borrowers with mortgages on longer fixed terms may take months or years to roll off, delaying the impact on their monthly repayments,” the report’s authors Severin Bernhard, James Graham, and Shaun Markham said.

Their research also found some evidence that banks that relied on New Zealand savers to provide more of their funding and larger banks seemed to be slower and less likely to pass on OCR changes fully.