Lenders Hike Fixed Mortgage Rates Amid Rising Wholesale Borrowing Costs

New Zealand's main lenders are increasing their fixed mortgage rates due to rising wholesale borrowing costs. The cost for banks to borrow at a fixed rate for two years has risen from 3.35% four weeks ago to 3.7%, while the cost of borrowing in other key time periods has also increased.

This rise in wholesale borrowing costs is partly due to our central bank's recent indication of greater concern about inflation, which has boosted market expectations that it will raise the official cash rate in September and October. Additionally, international oil prices have jumped back up after hostilities resumed in the Middle East, pushing interest rates higher offshore.

Independent economist Tony Alexander notes that banks are increasing their lending costs because they need to manage risk, and lending fixed with borrowing floating or at a shorter term can be particularly risky. As wholesale borrowing costs continue to rise, lenders will likely follow suit by increasing their fixed mortgage rates.