its two-year standard rate to 5.85 per cent from the previous 5.55 per cent, while its special was lifted from 4.55 per cent to 4.85 per cent. A hike of 20 basis points was also announced on the firm’s special rate and standard rates for three-year terms, which have now reached 4.99 per cent and 5.99 per cent, respectively. Kiwibank’s standard five-year rate was increased from 6.16 per cent to 6.79 per cent, the highest five-year rate since mid-2014. Meanwhile five-year rates offered by other banks vary between 5.69 per cent and 6.09 per cent.
These recent rate hikes announced by Kiwibank, along with other lenders, have left many commentators surprised, particularly in the case of the five-year rate. In March 2021, the average rate on a five-year deal stood at 3.78 per cent. It reached a whopping 5.47 per cent in February this year. This record-increase means a rise of just over $220 a fortnight, for borrowers with a $500,000 home loan, on a 25-year loan term.
Previously, experts projected interest rates on retail home loans to peak at about 5 per cent. This may have been based on the expectation that the official cash rate would peak 2 and 2.5 per cent by 2023, according to Gareth Kiernan, chief forecaster at Infometrics. “But with expectations that it could now get up to 3 per cent to 3.5 per cent next year, the predicted trajectory is affecting the longer-term rates,” he said. “We’ve also seen a lift of about 50 basis points in ten-year bond rates over the last month, so Kiwibank’s five-year rate seems about right given where wholesale interest rates have moved to. Our current expectation is that five-year fixed rates peak at about 6 per cent in the first half of next year, but there are still some upside risks to that outlook.”
Regardless, figures published by the Reserve Bank show that significant hikes in repayments is becoming a reality for more borrowers. According to the central bank, owner-occupier lending worth $68 billion is due to be re-fixed within the next six months, while another $100 billion will be re-fixed within six to 12 months.
