Mortgage Rates

Coverage fee adjustments takes time to maneuver mortgage charges


The Reserve Bank of New Zealand (RBNZ) released its analysis early Monday morning in Asia on how changing policy rates could affect the real estate market.

Important quotes (from Reuters)

Changes in the key rate take about six months to have a significant impact on mortgage rates.

A 1% change in Official Interest Rate (OCR) moves the average two-year mortgage rate by 0.34% in one month, but the big impact on mortgage rates comes six months later, where about 0.8% of the 1% change in OCR is passed through.

Mortgage rates move at the official rates, but it takes time.

The propagation of changes in monetary policy increases over time, with the peak effect on mortgage rates being around 6 months after the OCR is changed.

Household borrowing in the form of mortgages represents around 43% of commercial banks’ balance sheets, a large proportion of all New Zealand borrowing.

Small banks seem to pass OCR changes on more than large banks.

Research also found preliminary evidence that some banks pass on more of the change in official interest rates than others.

Research (RBNZ) notes that simultaneous OCR pass-through on 2-year mortgage rates is about a third.

The effect of changing the OCR on the transmission to 2-year mortgage rates increases in the medium term, with peak effects occurring after 6-7 months.

FX implications

NZD / USD is unresponsive to comments from the RBNZ and is holding Friday’s upward momentum around the 0.7000 line.