Interest Rate Changes
In our June & August newsletters, we wrote about the likelihood of rising Interest Rates. While not exactly good news for borrowers, it is reflective of an economy that has rebounded well from the major economic uncertainty of early 2020.
While the move into Covid Lockdown during August 2021 delayed any Official Cash Rate rise in the August Monetary Policy Review, the Reserve Bank on Wednesday confirmed an increase of 0.25%. This took the OCR from the record low of 0.25%, where it has been since March 2020, to 0.50% https://tmmonline.nz/article/976519398/what-the-rbnz-said-about-increasing-the-ocr
Wholesale markets had been expecting this change, and we have continued to see increases in wholesale swap rates over the last month. By way of example, five-year Swap Rates have risen from 0.57% in mid-January and now sit at 1.85%.
So what does this mean - As a borrower the impact is that you are likely to see increases on any floating interest rate borrowing you have. The cost of taking out new fixed rate term debt has certainly risen in recent months and appears likely to continue to do so. This is impacting both commercial and residential borrowing rates, although all still remain relatively low when compared to historic averages.
Finance New Zealand works with a range of bank and non-bank funding partners. Each lender will pass on changes to wholesale interest rates to varying extents, and the timing of changes will vary. A range of factors influence this. Each lender funds their business from different sources of wholesale money. Their cost of funding is different depending on whether they apply different base rates to each term of lending or on portfolio averages. Some lenders will delay passing on interest rate increases with the aim of being price competitive and to drive a higher volume of lending in their direction. This means that as we put together funding packages for our clients, we are able to assess which lender is offering better interest rates at any point in time and pass on that benefit to our clients.