Household spending squeeze continues as BNZ follows ANZ in mortgage rate rises

Thursday, 15 June 2023

Bank of New Zealand has followed ANZ in lifting home loan rates again.

Bank of New Zealand (BNZ) has lifted several key home loan rates.

The bank has lifted its three- and four-year fixed rate home loans, as well as its 18-month fixed rate.

The three-year “classic” rate for people with at least 20% equity in their homes, has gone from 5.99% to 6.29%.

Its four-year classic rate has gone from 6.19% to 6.29%, and its 18-month fixed-rate classic home loan rate has gone from 6.65% to 6.75%.

People with lower equity in their homes pay higher mortgage rates at BNZ.

The bank’s move follows mortgage rate rises at New Zealand’s largest home loan lender ANZ.

CoreLogic head of research Nick Goodall gives his projections for the impact of the Bugdet on interest rates.

At the start of the week, ANZ announced increases to the rates on its six-month, one-year, 18-month and three-year rates.

The Reserve Bank Te Pūtea Matua last month lifted the official cash rate (OCR) by another 25 basis points to 5.5% and indicated that it felt that was about as high as the rate would need to go.

New Zealand’s yield curve has been inverted for some time, with shorter-term fixes more expensive than longer rates.

That reflects a market expectation that rates will need to drop again before the expiry of those longer-term fixes.

In recent months, there has been limited market movement in response to official cash rate increases. In some cases, rates have fallen despite the upward moves.

Rising home loan rates have combined with large increases in house insurance premiums to bring about a big leap in the costs of owning a home.

Insurers have hiked house insurance premiums as a result of the extreme weather events in January and February, which caused tens of thousands of insurance claims.

On Wednesday, giant insurer IAG, which owns the State, AMI and NZI brands as well as selling insurance through many major banks, said it had been increasing house insurance premiums by 20% to 30%.

The earthquakes, cyclones and flooding that has hit the country in the last decade has made it much more expensive to insure homes.

It blamed high inflation, which has been pushing up the cost of claims, and an increase in the cost of reinsurance, which it uses to ensure it does not run out of money should a major event like an earthquake, or devastating cyclone, strike the country.

House insurance premiums have also risen as a result of an increase in the levies collected by Toku Tū Ake EQC, the new name for the Earthquake Commission.

IAG has also been lifting premiums on car insurance as a result of claims rising back to pre-Covid levels, in part as a result of crime.

High home loan and insurance premiums have hit households hard, combining with high inflation to cause what opposition politicians have dubbed a cost-of-living crisis.

Kiwibank chief economist Jarrod Kerr said Stats NZ figures released on Thursday showing the economy shrank by 0.1% in the first three months of the year came as no surprise.

Not did a sharp drop in household consumption which fell 3.4%, excluding durables.

“That’s weak. And that’s a direct result of higher interest rates hurting household budgets,” he said.

“Not to mention the cost of living crisis and falling house prices weighing on confidence.”