The Co-operative Bank has become the second major lender to increase longer-term fixed mortgage rates in response to rising wholesale funding costs, following similar moves earlier this week by Westpac.
The bank has cut its 6-month fixed rate by 14% to 4.65% while lifting rates across its 2- to 5-year terms by 30%.
The changes take the 2-year rate to 4.79%, the 3-year rate to 5.09%, the 4-year rate to 5.29% and the 5-year rate to 5.49%.
The bank has also increased term deposit rates, lifting 2- to 4-year terms by between 20% and 30%.
The 2-year term deposit rate has risen to 3.70%, the 3-year rate to 4.00% and the 4-year rate to 4.10%, as the bank responds to higher wholesale funding costs while supporting savers.
Mark Wilkshire, chief executive of The Co-operative Bank, said wholesale interest rates had risen sharply since the Reserve Bank’s last OCR decision on 26th November.
He said: “Wholesale rates have jumped by 0.5% to 0.6% since the Reserve Bank’s last official cash rate decision.
“Longer-term fixed-rate mortgages are influenced primarily by wholesale interest rates and the future rate outlook, as opposed to the current OCR.”
Wilkshire said expectations that interest rates are near the bottom of the cycle have driven recent market movements.
He said: “As long-term wholesale rates have risen quickly in recent weeks, on the expectation we are around the bottom of the interest rate cycle, we’ve had to start increasing our longer-term fixed home loan rates. However, we’ve reduced our short-term six-month rate.”
The move follows Westpac’s decision earlier this week to lift its 2- to 5-year fixed mortgage rates by 30% while cutting its 6-month special rate to 4.69%, also pointing to higher wholesale interest rates as the driver.
“The changes underline growing pressure on longer-term fixed mortgage pricing despite recent cuts to the OCR.