17 Oct 2009

ASB raises mortgage rates

6:54 am on 17 October 2009

ASB Bank has raised mortgage rates across the board following a jump money market rates.

The bank has raised rates by up to a third of a percentage point across a range of mortgages.

Westpac, SBS and ANZ National increased rates earlier in the week.

Since then, local money market interest rates have jumped, following stronger-than-expected inflation figures revealed on Thursday.

This pushed up the cost to banks of raising money for two years by up to a third of a percentage point.

Market rates rose as inflation figures suggest the Reserve Bank will raise the Official Cash Rate earlier than expected.

Economist John Ballingall says increases in home mortgage rates will not do much to dampen household spending.

Mr Ballingall, deputy chief executive for the Institute of Economic Research, told Checkpoint the Reserve Bank is expected to raise the Official Cash Rate to keep spending under control.

He says it is possible that rising mortgage rates will discourage spending by households servicing the increasing cost of their home loans.

However, Mr Ballingall says that is not likely to affect the Reserve Bank's decision, because the increases are not enough to have a significant impact on consumer behaviour.

Massey University senior lecturer in banking Claire Matthews, says the cost of servicing mortgages has been edging up for some time.

She says even though it is likely that rise will continue, home owners should not race to refix their mortgages, because that would only push rates up further.