With this week's expected increase in the Official Cash Rate (OCR), the third increase this year, it's likely that banks will pass the increase on to fixed-term mortgage rates according to one mortgage broker.

John Bolton, principal of mortgage broker Squirrel says that banks have been competing away their two and three year fixed term margins to the extent that the next OCR increase is definitely going to get passed on in the one, two, three-year mortgages rates. Two-year rates would be above six per cent.

Banks weren't offering much in the way of discounts to advertised two and three year mortgage rates, says Bolton, a former general manager at ANZ National Bank.

"The rates at that point now are so competitive, and the margins are so tight there, that pretty much the best rates you see advertised are the best rates available for that term," said Bolton.

He still expects that there will be more room to negotiate in the longer term rates, the four and five years fixed terms where the bank margins are a lot bigger.

"As a rule of thumb I think you can generally expect to be able to negotiate a bank down to the best (rates) of its competitors. It's a very competitive environment, the banks are very focused on retention, they're certainly not wanting to lose any clients, so they're pretty much going to match anyone else in the market," Bolton added.

The Reserve Bank has increased the OCR twice so far this year, by 25 basis points each time, to 3%, and is expected to lift it another 25 basis points on Thursday.

Source and full story: Interest.co.nz