PAUL MCBETH: No need to grind your teeth over mortgage rate hikes

Paul McBeth is the editor of The Bottom Line and Curious News, and previously worked at BusinessDesk for 15 years. He rents from a private landlord in the Auckland CBD and has transaction and savings accounts, term deposits and credit cards with Westpac NZ and ASB Bank. Curious Media has transaction accounts with Bank of New Zealand.

It’s easy to be befuddled by the nation losing its rag over the big red bank hiking some of its longer-dated mortgage rates.

The 30-basis point hike by Westpac New Zealand to its two- through five-year mortgage rates is roughly an extra $1,100 a year on average sized home-loan of $366,000, or $21.12 a week if you prefer.

Given we’re still seeing plenty of people rolling off rates with a six or seven at the front, Westpac’s 5.4% two-year rate will still give mortgage holders a little something under the Christmas tree.

The fact that the Reserve Bank isn’t fazed by bond traders dialling back their bets on another cut to the official cash rate and pricing in potential increases in 2026 is probably a sign that the medicine is doing its job.

It’s a wonder that you still know how to breathe

Because after a chilly winter, indicators are pointing to this week’s September quarter gross domestic product figures showing growth at twice the Reserve Bank’s forecast pace through the period, and ASB’s economics team is predicting 2026 activity will carry on at a rapid clip.

And let’s be clear – the 2.25% level of the official cash rate is still injecting juice into the broader economy. Borrowing costs remain historically low and the level where the Reserve Bank thinks the cash rate won’t fuel inflation or strangle the economy is closer to 3%.

With the output gap expected to show the economy’s doing a very New Zealand thing by not growing at its full potential for the next few years, there are some cooler heads out there anticipating the cash rate can stay at its current stimulatory level through 2026 even with some chunky growth baked in.

That’s why we’ve seen the likes of courier operator Freightways – one of the favoured economic bellwether stocks – charging up 31% on the local stock market this year in its best annual performance since the 42% gain it notched up in 2004.

I can’t help it if I’m lucky

The domestic outlook is looking pretty perky, even if regular people aren’t quite feeling the Christmas spirit just yet, and one of the larger risks in 2026 is the usual nervousness around the boardroom table when a general election draws near.

But one thing Westpac’s move should encourage is for people to revisit just where they’re parking their money.

Credit where it’s due in that big red and The Cooperative Bank raised deposit rates in line with the longer-dated mortgage rates.

But here’s the secret sauce for the big four lenders – they pay peanuts for the $131.66 billion sitting in locals’ transaction accounts and the $112.86 billion parked in savings accounts.

All your raging glory

For just how much households are leaving on the bankers’ tables, take a look at the foray into savings accounts from the likes of Sharesies, Booster, and Kernel.

The big four’s interest rates for on-call savings account range from 0.1% for ASB Bank to 1.7% from Bank of New Zealand, and across all the licensed lenders they average almost 1.2%. With an average $16,400 in those 6.9 million savings accounts, people are getting almost $200 a year in interest.

If you look at fixed income newcomer Wedge Management’s savings fund, it’s offering a best in class 3% annual return as it seeks to beat the average on-call interest rate with a set rate for investors. For that average on-call savings account, a Wedge investor would accrue $492 a year at the current rate, plus enjoy the tax advantage of being in a portfolio investment entity.

The trade-off being Wedge processes withdrawals within two business days, whereas shuffling money through your banking app happens immediately.

Minds are filled with big ideas

And it’s not just in the more liquid pots of customer money that the banks’ grip should be loosening, given the guarantee on deposits up to $100,000 makes the extra half-percentage point on offer from finance companies that little bit more attractive for those still licking their wounds from the sector’s collapse in the late 2000s.

For the average household term deposit of $88,500, that’s a difference of about $440 a year, enough to cover a standard Netflix subscription and then some.

All of which is to say, that the sky isn’t falling as the major banks start to rethink just what they’re going to charge mortgage holders in the coming year. Not everyone’s a borrower and it’s just as important to consider how hard your money’s working for you.

Because while the looming holiday season is a great time to unwind and cut loose with a little frivolous spending, it’s also an opportunity to reset your various financial objectives for 2026.

This column has been corrected to show Westpac NZ raised deposit rates in line with the mortgage rates.

Image from Curious News.