ASB quietly stops offering some mortgage rate discounts as Westpac hikes its longer-term rates
ASB is temporarily removing the discounts it offers some of its home loan customers.
The bank isn’t offering discounts on any of its mortgage rates, except for its six-month and floating rates – for now.
The move could be interpreted as a quasi-interest rate hike. While ASB has told mortgage brokers of the change, it hasn’t publicised it.
ASB’s move follows Westpac increasing its two, three, four and five-year fixed mortgage rates by 30 basis points on Wednesday. It also increased its term deposit rates and kept its mortgage rate discounts in place.
The Herald understands other banks have maintained their discounts, which are routinely reviewed.
Having fixed mortgage rates rise and stay elevated a fortnight after the Reserve Bank cut the Official Cash Rate (OCR) by 25 basis points is unusual.
What happened was that the market was surprised by the hawkishness of the Reserve Bank’s commentary.
It was prepared for the bank to keep the possibility of a further OCR cut on the table more than it did.
The surprise meant the market had to reprice higher.
Banks are also worried the Reserve Bank strongly suggesting this could be as low as the OCR goes in this cycle will prompt more borrowers than expected to fix their mortgages for longer durations.
If banks don’t have enough funding at the durations their customers want to fix their rates at, they have to secure more funding. This comes at a cost.
Two-year swap rates, which influence two-year mortgage rates, have jumped by about 50 basis points since November 26 when the Reserve Bank cut the OCR.
The Governor at the time, Christian Hawkesby, didn’t try to talk the market down when the Herald gave him the opportunity to do so during an interview on November 27. He said the swap rate rises were within the realms of what the Reserve Bank expected.
Swap rates rose even more thereafter.
Speaking to media on Wednesday, the new Governor Dr Anna Breman also declined the opportunity to influence the market.
She said she would monitor the impact of tightening financial conditions, stressing “there is no pre-set course for monetary policy”.
Breman only took up the role on December 1 and was yet to meet all the other Monetary Policy Committee members, who are collectively responsible for setting monetary policy.
The committee is due to next review the OCR on February 18, but Breman will have another opportunity to comment on the market next week when she does an interview with the Herald.
Some observers believe the Reserve Bank needs to do something, fearing the upward pressure on mortgage rates will hamper the economic recovery.
The market pricing is also squeezing banks’ margins.
Other observers are less concerned, noting the market may have got a bit ahead of itself and pricing can jump around.
Interest rates are also no longer firmly in decline in other parts of the world.
Finance Minister Nicola Willis, who has pinned her politics on growing the economy and improving competition among banks, said now was the time for banks to prove they were competitive.
She encouraged borrowers to shop around for the best rates.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.
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