ASB’s variable rate mortgages will increase to more than 7%

ASB's variable rate home loans have now crossed the 7% mark.

Kirk Hargreaves / Stuff

ASB’s variable rate home loans have now crossed the 7% mark.

ASB will raise its mortgage rates, its variable rate loans going above 7%.

ASB’s variable housing rate will drop from 6.85% to 7.35%, and its Orbit revolving credit mortgage rate will drop from 6.95% to 7.45%.

The bank said it is making the decision, which will happen on Oct. 18 for new loans and Oct. 25 for existing loans, after Reserve Bank Te Pūtea Matua raised the official exchange rate (OCR) from 50 basis points to 3.5% earlier this month. .

ASB follows Westpac and ANZ, which have already raised their variable mortgage rates to over 7%.

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In its announcement, ASB chose to focus on immediate savings rate increases.

The maximum interest rate on ASB’s Savings Plus deposit account would increase from 2.25% to 2.8%, he said.

The interest rate for Headstart would increase from 2.25% to 2.8% and for Savings On Call from 0.8% to 1.30%.

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The bank had also raised some of its term deposit rates, including its nine-month deposit rate to 4% and its five-month deposit rate to 2.75%.

“Today’s changes to savings deposit rates will be good news for many customers,” said Adam Boyd, ASB’s executive managing director for personal banking.

“We also know that some customers will have questions about the impact of this on their home loan and encourage them to contact them, so we can talk to them about the best options to meet their needs,” he said.

It’s been a tough time for mortgage homeowners as rates have risen as the Reserve Bank battles high inflation.

The rise in mortgage rates contributed to the fall in house prices.

The latest figures from the Real Estate Institute show a 1.4% rise in median prices in September compared to August, following monthly price declines of 1.2% in August and 4.7% in July.

“Overall prices are now down 11% from their peak in November last year,” Westpac acting chief economist Michael Gordon said.

“Our forecast remains for a 15% peak-to-trough price drop this year and next year,” he said.

Rising mortgage rates are causing home loan “stress” for many recent buyers.

According to Reserve Bank estimates, a quarter of first-time home buyers who bought in 2021 would be under mortgage pressure at current interest rates.

Westpac's acting chief economist, Michael Gordon, said home sales were at a very low level.

Provided

Westpac’s acting chief economist, Michael Gordon, said home sales were at a very low level.

The Reserve Bank’s mortgage stress analysis is based on an interest rate of 5.5%. On Friday, the big four banks all had one-year rates of 5.45% and two-year rates of 5.65% or higher.

A spokesperson said this meant that when borrowers who took out loans in 2021 re-fixed, they were likely to find that the income they had left after taxes and mortgage payments would be reduced to such an extent that they should drastically reduce their expenses.

If interest rates were to rise to 7%, which floating mortgage rates are approaching, the number of distressed first-time buyers would rise to just over 57%, and between about a quarter and a third of other 2021 homeowners and investors are also stressed.

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