BNZ raises fixed mortgage rates for second time in two weeks as wholesale costs climb

Key facts

• BNZ increased 18-month fixed rate to 4.95%, two-year to 5.19%, three-year to 5.39%.
• The two-year rate rose 20 bps two weeks ago and another 10 bps now, totaling 30 bps.
• BNZ's half-year statutory net profit fell 38% to $494 million, with operating expenses up $352 million.
• ASB lifted one-year rate to 4.65% and two-year to 5.25% last week.
• TSB undercut majors with a one-year special rate of 4.59% for borrowers with 20% equity.
• Reserve Bank held OCR at 2.25% in February; next decision due April 8.
• Annual inflation hit 3.1%, above the 1%-3% target band.
• Westpac's managing director cited significantly increased longer-term wholesale rates.

BNZ delivers second round of rate hikes in a fortnight

BNZ has raised its fixed mortgage rates for the second time in as many weeks, pushing up the cost of borrowing for homeowners as volatile global financial markets drive wholesale interest rates higher. The bank increased its 18-month, two-year and three-year fixed home loan rates by 10 basis points each, effective today. The 18-month rate jumps from 4.85% to 4.95%, having already risen by 6 bps on April 23. The two-year rate, which went up 20 bps to 5.09% two weeks ago, now climbs to 5.19%. The three-year term moves from 5.29% to 5.39%. Despite the increases, BNZ retains the equal lowest two-year rate among the big five banks, sharing that position with Westpac. Its one-year fixed rate remains unchanged at 4.49%, matching Kiwibank and sitting below Westpac's recently increased one-year offer.

Wholesale funding costs drive industry-wide repricing

BNZ joins a wave of rate increases across New Zealand's banking sector as lenders grapple with rising wholesale funding costs. Last week, ASB lifted some mortgage rates by up to 20 bps, including a 6 bps rise in its one-year fixed rate to 4.65% and a 16 bps increase in its two-year rate to 5.25%. Its three-year rate rose 10 bps to 5.49%, and the four-year term increased by 14 bps to 5.69%. Smaller bank TSB undercut the major players by lifting its fixed one-year special rate to 4.59% for borrowers with at least 20% equity. The moves follow Westpac's earlier adjustments, which its managing director of product, sustainability and marketing, Sarah Hearn, attributed to longer-term wholesale rates that "have increased significantly in recent weeks, driving up funding costs for lenders." BNZ did not provide commentary alongside its rate announcement, but the timing closely mirrors Westpac's explanation.

Profit slump and rising expenses amid software overhaul

The rate increases come a day after BNZ announced a statutory net profit of $494 million for the half-year ending March 31, down $301 million, or 38%, from the same period a year earlier. Operating expenses rose by $352 million in the six months to March as the bank escalates a replacement of its software systems. Total home lending rose 17.5% in the six months to December, with almost a quarter of new home loans going to first-home buyers. The profit decline, however, underscores the pressure on margins as funding costs rise and competition intensifies.

Inflation and OCR outlook add uncertainty

The Reserve Bank held the official cash rate at 2.25% at its February meeting, even as annual inflation edged out of its 1%–3% target band to 3.1%. The next OCR decision, due on April 8, will be closely watched by advisers and lenders as they reassess where fixed and variable mortgage rates may head next. The oil crisis created by the war in the Middle East has driven up prices, raising concern that the Reserve Bank and other central banks might have to increase interest rates to slow inflation. The subsequent OCR decision falls on May 27, one day before the Budget.

Competitive dynamics among major lenders

BNZ's one-year rate of 4.49% now matches Kiwibank and sits below Westpac's recently increased one-year offer, giving BNZ a competitive edge at that term. Its 18-month rate remains "at a very competitive level among the major banks," according to interest.co.nz, while the two-year rate, although higher, is still around 30 basis points below Westpac's new two-year level and in line with ANZ and Kiwibank. For borrowers with less than 20% equity, a low equity interest rate premium applies. The shifting landscape means homeowners face higher costs on longer terms, while shorter fixed rates offer some respite.

What lies ahead for mortgage holders

With all major banks having lifted rates in recent weeks, the direction of future moves hinges on wholesale funding markets and the Reserve Bank's policy response. The next OCR announcement on April 8 will provide a key signal, followed by the May 27 decision. Banks are likely to continue adjusting rates in line with funding costs, and borrowers may face further increases if inflation remains above target. The competitive pressure among lenders, however, could temper the pace of hikes, particularly on shorter terms where BNZ and others are vying for market share.

The bottom line

• BNZ raised 18-month, two-year and three-year fixed rates by 10 bps each, marking the second increase in two weeks.
• Wholesale funding costs, driven by global market volatility and Middle East tensions, are pushing all major banks to raise mortgage rates.
• BNZ's half-year profit fell 38% to $494 million, partly due to a $352 million rise in operating expenses for a software overhaul.
• The Reserve Bank held the OCR at 2.25% despite inflation at 3.1%, with the next decision on April 8.
• BNZ's one-year fixed rate remains at 4.49%, competitive with Kiwibank and below Westpac, offering some relief for short-term borrowers.
• Borrowers with less than 20% equity face a low equity premium on top of the higher rates.