Interest Rates Lift a Little

Banks hike interest rates despite Auckland lockdown

Three major banks have pushed home loan interest rates up this week, despite Auckland remaining in strict level four lockdown.

• Kiwibank was the first to move, increasing its one-year special rate from 2.49 percent to 2.65 percent. Its standard rate lifted from 3.34 percent to 3.5 percent.
• Five-year fixed rates shifted from a standard rate of 4.74 percent and a special rate of 3.89 percent to 5.04 percent and 4.19 percent, respectively.
• ANZ lifted its one-year special from 2.55 percent to 2.65 percent, its two-year special from 2.95 percent to 2.99 percent and its three-year special from 3.25 percent to 3.4 percent.
• ASB increased its six-month, 18-month, one and two-year rates by between 0.26 and 0.30 percent.

Why have the banks hiked interest rates? Even if not by much

This is on the back of an increase on longer-term rates, which had been driven up by wholesale funding pressure from offshore. This is where the NZ banks get most of the money they lend to Kiwi’s.

As further justification for raising rates, banks are also saying that most parts of the NZ economy are still doing quite well. This is a fair comment, even if the economy is still on various forms of “life support” including: wage subsides, Covid resurgence payments, money printing (quantitative easing), and interest rates still near historic lows. As the overall NZ economy is generally going well, most commentators still predict the Reserve Bank of New Zealand to start lifting interest rates a little.

Less in the pocket

Interest rate rises will take money out of people’s pockets and redirect some of what they might have previously spent, but the effect would not be felt immediately by most.

When assessing how much everyday Kiwis can borrow, banks already assess borrowers’ ability to pay rates of about six percent, and nearly nobody expects rates to get that high again any time soon.

Banks criticised

The bigger concern for many people is the security of their incomes, so it’s no surprise that the big banks have received some criticism for increasing interest rates during another lockdown, when so many are in immense financial difficulty. This is especially the case among the ‘team of two million’ in Auckland for those not classed as essential and who cannot effectively work from home. This includes many small and medium sized business owners, who often rely on bank lending secured against their homes to meet occasional business shortfalls, and those who have borrowed against their home to fund business expansion. Plenty of businesses still won’t be open at Alert Level Three either, including gyms, hairdressers, cinemas, and so on. Even many others that can reopen might still struggle as customers usually cannot visit premises.

There are also sectors of the economy that (even before the current lockdown) are still reeling from the initial Covid outbreak. This includes areas such as travel, events, tourism, and hospitality.

Some have gone so far as to make passionate online pleas to the banks, hoping they’ll reconsider the impact on those doing it tough, not just those doing well under present circumstances. If ongoing or repeated lockdowns do lead to a lot of people losing their jobs and small businesses shuttering, the banks might find themselves in financial trouble too! Even if the risk of that happening is small, the banks will want to push up their prices (i.e. interest rates) to ensure they’re being paid for taking the increased risk.

Interest rates are still at record lows

Even after the latest lift, interest rates remain historically low, so we’d encourage anyone with a mortgage, and those about to get one, to make contact to discuss the best options for their circumstances.