Mortgage interest rates go up again

Advertisement Yesterday’s increase comes just a few weeks after a similar-sized move by the major banks last month. Households having to refinance two-year mortgages are facing a 2 per cent increase in interest costs, which would add more than $100 a week to payments on a $350,000 mortgage. Banks’ fixed-mortgage rates are generally priced from the interest rate swaps market where rates have again been on the rise in the last few weeks.

However, the Herald understands the margin above swap rates the banks must pay to secure money from overseas lenders has also risen considerably in the past month. “That reflects the credit risk of the banks,” said Massey University head of banking studies David Tripe.

Early this week, ANZ National chief executive Graham Hodges foreshadowed yesterday’s increases, saying that as the international cost of funds continued to rise, that would be reflected in local interest rates both for the household and corporate sectors.

“That will happen irrespective of what the Reserve Bank is doing with the official cash rate.” Mr Hodges said the squeeze on households from previous rate hikes was already showing up in a sharp increase in late loan repayments, particularly since September last year. Household budgets are already facing significant pressure from food and fuel price rises. Oil hit US$101 a barrel yesterday, and petrol prices may increase as a result.