Mortgage rates for New Zealand borrowers could increase amidst the credit risk concern looming globally. The fear regarding credit worthiness can lead to increase in funding costs of banks, which consequently will be passed on to consumers.
According to banking expert David Tripe, as per New Zealand Herald, New Zealand banks are facing the possibility of increasing their funding costs. He said, "If it persists for any length of time, we're likely to see some upward adjustment in [consumer] interest rates."
"As funding costs in aggregate for the banks shift, that will shift what banks perceive themselves as needing to charge their customers to maintain their margins," Tripe added.
New Zealand is seen as risky market by overseas lenders and with financial markets currently in turmoil, banks in the country are facing bigger premium rates to borrow money.
"The market turmoil might keep the upward pressure on," said Dominick Stephens, an economist at Westpac, as per another report from New Zealand Herald.
Meanwhile, Tripe noted that the strong competition among banks, especially when it comes to home loans, could prevent drastic increases for borrowers. Another factor that can keep the mortgage rates from rising is a cut by the Reserve Bank, which Stephens believes has a greater influence.
Late in January, New Zealand Herald reported that mortgage rates could possibly hit another low in the coming months. This is in line with the Reserve Bank's indication that it may introduce another slash to the official cash rate this 2016 to keep inflation within budget. In a statement Reserve Bank said "some further policy easing may be required over the coming year." The rate currently remains at 2.5 percent.
The announcement from the Reserve Bank is expected to be released in March, although reports say it can be pushed back in June.
