Butterfield: no home mortgage rate hike
Butterfield Bank will not raise residential mortgage rates in the wake of the US Federal Reserve hike of 0.25 of a percentage point.
Speaking after the first Fed increase in nearly a decade, a Butterfield spokesman said that it would not raise its rates on residential mortgages or personal lending as a result — but that commercial mortgages would rise.
The interest rates paid to savers will not increase either.
The spokesman added: “The base rate used by the bank in determining commercial mortgage and lending rates will be increased by 25 basis points, reflecting recent increases in demand for commercial lending products in Bermuda.
And he said: “Deposit rates will not be adjusted at this time.”
“Butterfield will evaluate the implications of any future Fed rate changes and will make pricing adjustments on select products as appropriate, balancing the interests of all the bank's stakeholders.”
An HSBC Bermuda spokeswoman said: “HSBC economists forecasted a small rise in US interest rates in December and we await their view on its effect on the market.”
Clarien Bank had not responded to a request for comment by press time.
Government said that the hike was unlikely to have a major impact on its debt.
A spokesman for the Ministry of Finance said that Government had expected a rate rise this month.
He added: “While a hike in the federal funds rate will have some impact on newly issued Government debt, it is likely to be manageable.
“There will be minimal impact due to the fact that the average rate on current debt is relatively low because the Government borrowed when market rates were lower.”
Government's gross debt totals around $2.25 billion and it pays a fixed interest rate of around 5 per cent on most of it.
Borrowers whose lenders do pass on the quarter-point increase will see a small impact on their finances.
For example, repayments on a new home mortgage of $500,000 at 6.5 per cent over 25 years total about $3,376 a month — at 6.75 per cent, the repayment would be about $78.50 more a month at around $3,454.
A special committee of the US central bank voted unanimously for the one quarter of a percentage point increase, the first since 2006.
A statement said: “The committee judges that there have been considerable improvements in labour market conditions this year and it is reasonably confident that inflation will rise, over the medium term, to its two per cent objective.”
The Fed added that it will continue to monitor inflation and employment to see if further increases are justified. Fed chairwoman Janet Yellen said the committee was confident that the US economy would “continue to strengthen” but cautioned there was still “room for improvement.”
And she warned that if the Fed had stalled further on a rate rise, it might have been forced to tighten monetary policy too quickly — which could have sparked another recession. The Fed's medium-term prediction for the Federal Funds rate is 1.5 per cent next year and 2.5 per cent in 2017.
The central bank is not expected to return to normal rates of about 3.5 per cent until 2018, when it expects the US economy to have recovered from the effects of the 2008 global slump.
But Ms Yellen added: “Were the economy to disappoint the Federal Funds rate would likely rise more slowly.” When the Fed announced a 0.75 percentage point emergency rate cut in 2008 in a bid to stave off the recession by giving the US economy a shot in the arm, Bermuda banks responded by cutting their mortgage rates by between 0.25 per cent and 0.5 per cent. That meant that variable-rate mortgage holders paid less — but the other side of the coin was that savers lost out as interest rates offered on some deposit accounts also fell.
Philip Butterfield, who was then chief executive officer of HSBC Bermuda, said at the time that the bank set its interest rates independently, but that the US federal funds rate was a benchmark factor in any decision.