Rates rising faster than expected: are clients worried?

Mortgage rates have been rising swiftly from their ‘historic lows’ since the September OCR hike, and Kiwibank’s chief economist has expressed concern that they are moving faster than expected.

Kiwibank became the latest bank to lift its rates across a range of terms on Tuesday. Its two-year special rate has now risen to 3.59%, its standard two-year rate to 4.44%, and its three-year special to 3.99%.

This follows ANZ’s swift increase in fixed-term mortgage rates across the board last week, which saw 0.45% added to each rate from six months to five years.

Kiwibank chief economist Jarrod Kerr said that in May, he had been expecting to see an interest rate lift at the start of next year - however, we are now looking at two rate increases this year, with more to come next year.

Commenting on the rise in mortgage rates, The Mortgage Supply Co director David Windler said while his clients are not panicking yet, they are still “mindful” of the incoming increase in costs, with more and more looking to fix for longer terms to get certainty.

Read more: ANZ fixed mortgage rates surge

“We’ve had lots of conversations with clients who are not so much expressing concern around it, but are certainly mindful of the rates that have risen quite a bit over the past six months,” Windler said.

“Most signalling is suggesting that this will continue, and so they’re looking at some kind of surety with their rate decisions.”

“This means we’ve been locking in a bit more three-year terms now, whereas 12 months ago we were fixing most rates for up to a year,” he explained.

“Borrowers are looking to safeguard their future cashflow a bit more - the four- and five-year terms are still a bit far out for some people, but the three-year fixed rates have definitely become very popular.”

Mike Pero mortgage adviser Scott Jackson said that he has seen more “knee jerk reactions” to the rate rises from his clients, but noted that while rates are rising, they are still yet to lift much higher than their historic lows.

However, he said that he is also having more discussions about putting clients on to a longer-term rate, even if that means paying a fee to break from their current rate.

“There have been some panicked knee-jerk reactions, especially from clients who have been on very low rates for the last two years,” Jackson said.

“Some of them are realising that they might not be quite ready to renew when their loan is up for renewal in January or February next year, so we’re having a lot of discussions with them.”

Read more: TSB vows to beat Aussie banks on fixed home loans

“We’re looking at whether they should break out of their term now, and go for a longer term rate and pay a very small or negligible break fee to end that contract early,” he explained.

“That will mean that they can secure a longer period on a lower rate, because it seems that rates are only going to go one way from now.”

Despite the rising mortgage rates, Jackson noted that most clients will have actually done very well with regards to interest rates over the last year. Additionally, with banks assessing loan applications against a significantly higher rate than those on offer, he said that clients should be fairly well insulated in terms of costs and affordability.

“Interestingly, one discussion I’m having a fair bit with clients - especially those who have fixed their rates within the last two years - is that they’ve actually done really well,” Jackson said.

“They’ve fixed at a time where rates are at historic low points, and even now, while there’s a bit of a bit of a panic about rates and how quickly they’re rising, those rates are still really good.”

“We’re in the threes and fours, and not the sixes and sevens, so there’s no need to panic yet,” he said.

“When the banks are assessing our clients’ loans, they’ve been assessing them in the mid to high sixes - so the banks have been building up a system where the clients should be OK. So naturally there’s a bit of hype, but I think a reality check will leave most people feeling like they’ve done all right and had a good couple of years, and now we’re just coming back to normal.”