10 Aug 2010

Gap narrows between floating, fixed mortgage rates

7:00 pm on 10 August 2010

The Reserve Bank has been given more reason to eventually move its interest rates higher as the gap narrows between floating and fixed rates.

The gap closed after a round of mortgage rate changes by the main banks in New Zealand the past few days.

More than half of all new mortgages in the past year have been on floating rates as those fell to 50-year lows.

That led to predictions of a lower peak in the Official Cash Rate as rises were felt more immediately in the economy.

But moves by Kiwibank, ANZ, Westpac, ASB and TSB to cut fixed rates and raise floating rates could change that.

The gap between floating and two-year fixed rates is now as little as half a percentage point.

The Reserve Bank may have to eventually raise the cash rate higher if fewer people opt for floating rates.

But with the economy only slowly dragging itself out of recession, and inflation in check, that could be some time away.

Last week, ASB was the first to follow the Reserve Bank's latest quarter point increase in the Official Cash Rate.

Most of the major banks have now raised their floating rates by a quarter of a percentage point, and TSB raised its floating rate by 0.3%.

Westpac, ANZ and TSB have also raised six-month fixed mortgage rates, but all the banks have cut longer-term fixed mortgage rates by up to a tenth of a percentage point.