Wellington, Aug 13 NZPA - Kiwibank and BNZ both raised their three, four and five-year fixed mortgage rates today, bringing them into line with recent increases by other major banks.

The two banks moving today also cut their variable rates, with Kiwibank saying it believed its new 5.79 percent variable home loan rate was the lowest variable rate offered in this country for at least 40 years.

Kiwibank said the increases to fixed term rates followed rises in longer term wholesale market rates.

Acting Kiwibank chief executive Paul Brock said interest rates had been static for all the banks for the past six months, but in the past week there had been sharp increases for longer term lending.

In comments attached to his Weekly Overview newsletter, BNZ chief economist Tony Alexander said the round of bank lending rate rises reflected funding cost increases during the past couple of months.

This week wholesale interest rates had crept higher with increasing acceptance around the world of mild economic recovery, Mr Alexander said.

Across the Tasman, economic conditions appeared to be turning around so well that the timing of monetary policy tightening had been advanced by some forecasters to early 2010, with the possibility recognised that rates could start rising even before the end of this year.

That was relevant to interest rates in this country, as New Zealand tended to compete in the same market as Australian borrowers seeking to raise funds offshore, he said.

If Australian rates were rising then investors naturally demanded New Zealand pay extra as well.

Mr Alexander also said the past week had revealed increasing willingness by people to talk about prices rising in the housing market.

That had to be watched because of obvious interest rate implications if New Zealanders started a new borrowing spree to buy houses which people increasingly realised were in structural short supply, he said.

That shortage of supply all but ruled out a capital gains tax to stem rising prices, because reduced construction by investors would aggravate the shortage even more.

An absence of ready money from finance companies to fund developments was going to play a role in restricting the construction response this cycle anyway.

In the rate rises announced today, Kiwibank lifted its three year rate 55 basis points to 7.4 percent, its four year rate is up 55bp to 7.95 percent and its five year rate up 35bp to 8.3 percent.

Kiwibank also lifted its two-year rate 30bp to 6.39 percent, but that is still a little below the major banks' two-year rates.

At BNZ the standard three-year rate rose 46bp to 7.45 percent, the four-year rate lifted 45bp to 7.95 percent, and for five years the rise was 31bp to 8.3 percent.

The cuts in variable rates took BNZ's standard variable rate down 15bp to 6.3 percent, although its TotalMoney variable rate dropped 14bp to 5.85 percent. The fall in Kiwibank's variable rate was 20bp.

At the other major banks, variable rates range between about 6.4 percent and 6.5 percent.