Wholesale rates may be falling fast toward record lows but risk premiums are rising. Mortgage rates may fall, but it is unlikely to be in the next week or two

Could Brexit affect our mortgage rates?

Clearly it is too early to tell.

But if the sharp fall in wholesale swap rates we saw on Friday are sustained – and there is likely to be further downward pressure on them today when markets open – it is entirely possible.

Bank treasurers will no doubt want to wait until some of the dust settles. Wall Street won’t open until tomorrow and while sharp falls in equity prices are already priced-in in the options and futures trades, you can be sure cashed up bargain hunters will be out in force. (And this will no doubt include the NZ Super Fund and many of your KiwiSaver fund managers.)

Wholesale swap rates may have dived lower, but risk premiums have risen at the same time. They rose +10% on Friday for Australasian investment grade corporate debt. They may rise some more today. But this only puts them back to the same risk premium we saw in May, and in fact these risk premiums are still -6% lower (after the jump) than they were at the start of the year.

Wholesale swap rates on the other hand are either at or near record lows.

This wait-and-see situation will probably only last a week or two, then some will undoubtedly break ranks.

After all, mortgage demand is unseasonably strong and opportunities exist for market share gains among the challenger banks.

In the meantime, we will probably only see some minor tweaking in home loan rates.

And in the meantime, expect bank spokespeople to talk up the possibility of retail rate hikes based soley on the rising risk premium (and conveniently ignoring the base wholesale rate falls).

In fact, there have been two institutions that have moved Friday or Monday.

The SBS Bank has tweaked two fixed rates. It has cut its six month fixed rate to 4.50% and raised its 1 year rate to 4.25%.

This makes their six month rate the lowest of any bank except ICBC, who has a 4.39% rate for that term.

Their new one year rate of 4.25% ends their 4.10% ‘special’ promotion, and resets it to match many other rivals as the market low.

More odd, Sovereign has raised its variable rate, now to 5.75% from 5.55%. It is unclear what has motivated that change especially as parent ASB is not indicated a similar shift. Maybe its just an opportunistic margin grab.

See all banks’ carded, or advertised, home loan rates here.

below 80% LVR 6 mths  1 yr  18mth  2 yrs   3 yrs   5 yrs 
  % % % % % %
4.99 4.25 4.89 4.35 4.99 5.30
ASB 4.75 4.25 4.25 4.19 4.39 4.79
4.99 4.25 4.99 4.19 4.39 5.15
Kiwibank 4.75 4.29   4.15 4.49 4.99
Westpac 5.15 4.25 4.95 4.29 4.49 4.89
             
4.50 4.25 4.19 4.25 4.65 4.99
HSBC 4.85 4.19 4.19 4.19 4.49 4.99
HSBC 4.50 4.25 4.15 4.15 4.65 4.99
4.75 4.25 4.35 4.19 4.59 4.99

In addition, BNZ has a fixed seven year rate of 5.55%, while TSB Bank offers a fixed ten year rate at 5.75%.