Brexit could raise mortgage rates for Kiwis

by NZ Adviser27 Jun 2016
After Britain’s decision to leave the European Union, New Zealand bank economists expect bank funding costs to hike which could lead to higher mortgage rates, Fairfax media reports.  
 
ASB economist Nick Tuffley says, "At the moment we are seeing the UK and European bank stocks have been hit quite heavily.
 
"There will be inevitable increases in credit risk premiums for banks in general and that will include for Australia and New Zealand," he said.

He said what exactly the impacts will be on mortgage rates are yet to be seen. 

"We have seen a rise in funding costs and risk premiums coming through."

Dominick Stephens from Westpac also pointed out the rising funding costs for banks to Fairfax.

"Global financial markets are shocked,” Stephens said. “Global interest rate markets have reacted by pushing credit spreads wider, while expectations of interest rate hikes from the US Federal Reserve have been pegged back."

There has also been speculation that Brexit has increased the likelihood of an Official Cash rate cut by the Reserve Bank.

"In New Zealand, pricing has moved decidedly in favour of an OCR cut in August, which seems reasonable at this stage. Markets have also moved to price in some chance of the OCR falling below 2 per cent," Stephens said.

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