Leading bank lowers two-year fixed mortgage rate amid interest rate rises

ASB announced on Tuesday its two-year fixed rate is 4.15 percent.
ASB announced on Tuesday its two-year fixed rate is 4.15 percent. Photo credit: Getty Images.

In an environment where interest rates are going up, ASB is cutting its two-year fixed mortgage rate by 0.2 percent.

It comes as interest rates have come off their record-lows, the Reserve Bank having increased the Official Cash Rate by 25 basis points, to 0.75 percent in it's November 24 Monetary Policy Statement.

The "time of cheap money is over" and interest rates are "rising swiftly", Kiwibank chief economist Jarrod Kerr said in November.  Reserve Bank forecasts show roughly seven more cash rate hikes through to the end of 2023, as it unwinds the emergency cash rate setting put in place in March 2020.

In an announcement on Tuesday, ASB said it is offering customers the opportunity to lock in their borrowing for two years, at 4.15 percent.

ASB executive general manager retail banking, Craig Sims, said wholesale swap rate movements allowed the bank to reduce pricing on it's two-year fixed rate.

Fixing at a slightly cheaper rate gave borrowers "a little more flex" in their household budget at a busy time of year, he said.

"We’re passing this change through to our customers as part of ASB’s commitment to helping more Kiwis boost their financial wellbeing," Sims said.

"Today’s changes are about making things that little bit easier for homeowners and those looking to buy."

Wayne Henry, managing director of Wayne Henry mortgages told Newshub although ASB's two-year rate is competitive and "every dollar counts", it won't suit everyone.

"It's easy to lock that rate in from your smartphone without talking to a professional...there could be a bit of future pain if [borrowers] get that term wrong," Henry said.

In the current environment of rising interest rates, borrowers need to remember that when their mortgage rolls off in two years' time, they could be faced with much higher repayments, he said.

This is particularly true if all of their borrowing is fixed on the same rate.

"You might have a $500,000 or $1m loan and the best structure moving forward might not necessarily be to fix that whole chunk in," Henry added.

"You might want to have a little bit on a floating rate and have the rest spread out over [different] fixed terms to reduce your risk."

On Tuesday, the standard two-year fixed rate offered by ANZ, BNZ and Westpac, is 4.95 percent.  Kiwibank's two-year rate is 5.20 percent.