ASB lifts longer-term fixed home loan interest rates as economies start to recover

Friday, 23 April 2021

People taking out new loans at ASB will be charged a higher interest rate on a one-year home loan than a five-year home loan.

ASB has increased its interest rates on three- to five-year home loans as expectations of a global economic recovery strengthen.

Economists say the move is a signal to borrowers that money markets are now pricing in rises in interest rates in 2022 and 2023 as countries recover from the economic blow Covid-19 has inflicted.

As well as small rises in its longer-term interest rates, ASB slightly reduced its one-year fixed rate to 2.25 per cent below the rates offered by its big rivals.

ASB economist Jane Turner said shorter-term fixed rates of one- and two-years were “anchored” and unlikely to rise this year.

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“We are not expecting to see any rise in shorter term interest rates this year,” Turner said.

“The Reserve Bank is very committed and rightly so, that we need stimulatory conditions right here, right now,” she said.

But 2022 and 2023 would see strong economic growth, she said. Fears of economic decline had been replaced with fears of inflation.

ASB’s one-year 2.25 per cent rate compared to 2.29 per cent from ANZ, Westpac and BNZ, and 2.35 per cent from Kiwibank.

But ASB’s three-year rate was now 2.89 per cent, just above its main rivals, with Kiwibank charging 2.65 per cent, while ANZ, BNZ and Westpac were charging 2.79.

Jarrod Kerr says with the global economic situation there is a risk of hiking interest rates too high

ASB’s four-year rate of 3.19 per cent is lower than ANZ’s 3.9 per cent, but higher than the 2.99 per cent charged by Westpac and BNZ, and the 3.09 per cent charged by Kiwibank.

ASB’s five-year rate was 3.39 per cent, with only ANZ charging more at 3.99 per cent.

Kiwibank chief economist Jarrod Kerr said longer-term borrowing costs for banks on wholesale markets had risen in the past six months.

“Interest rates last year were gutted by the Covid crisis,” he said.

But there was now a light at the end of the tunnel, with vaccines and a better growth outlook, and a tick up of inflation, had all led to longer-term borrowing, and hedging costs, for banks rising.

But like Turner, Kerr said shorter-term home loan rates were anchored, and people nearing the end of a fixed rate term should not expect to see rate increases for shorter-term loans this year.

Most home loan borrowers opted for one- or two-year rates, he said.

Borrowers like the option of shorter term loans, which allowed them opportunities to make extra repayments at their end of loan terms more often.

Home loan rates are at low levels. In April 2001, the average two-year home loan rate was 7.2 per cent, according to Reserve Bank figures. In April 2011, as the world recovered from the global financial crisis, it was 6.4 per cent. In March 2021, it was 3.5 per cent.