NEW ZEALAND BUSINESS NEWS
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BNZ has cut its advertised fixed home loan rates for terms of two years or less, bringing them into line with the other main banks after money markets repriced their expectations for the official cash rate. The move follows an unexpected decision by the Reserve Bank to hold the official cash rate, which sent short-term swap rates lower.
Swap rates are the wholesale interest rates banks pay to fund fixed lending, and they feed directly into what a borrower is offered. When those rates fall, banks have room to cut.
The result is a familiar pattern among the major lenders for fixed terms of two years or less. The six-month fixed rate has settled at 4.79%, apart from Kiwibank at 4.85% and Westpac at 4.89%.
The one-year rate has settled at 4.99%, with Kiwibank at 5.15% and Westpac at 5.19%. The 18-month rate sits at 5.29%, although Westpac’s recent cut puts it at 5.19%. The two-year rate is 5.35% for all except Kiwibank at 5.39% and Westpac at 5.29%.
Across these popular fixed terms, the gap between the lowest and highest advertised rate among the main banks ranges from 3 basis points to 20 basis points. A basis point is one-hundredth of a percentage point.
Lower rates remain available from the challenger banks, particularly the Chinese-owned ones. China Construction Bank advertises 4.35% for six months and 4.49% for one year, while ICBC offers 4.55% and 4.65% for the same terms and Bank of China 4.58% and 4.68%.
Banks such as SBS and TSB are less directly exposed to shifts in swap rates because their cost of funds is driven more by what they pay depositors. For those lenders, how their deposit base responds will play a key role in how they set home loan rates.
It is unclear where wholesale swap rates will go in the short term, even if the longer-term trend is higher. Markets are pricing an 80% chance of a 25-basis-point increase at the Reserve Bank’s 9 December review, and the Governor has conceded that the next move will be up.
Even so, financial markets have been reluctant to price the full increase in, given the surprise hold on 28 October. The recent rate rise by the Reserve Bank of Australia has had little impact on New Zealand rates.
For a business carrying a mortgage over premises or plant, the clustering of the main banks within a few basis points means there is little to be gained from simply taking the advertised rate of the bank it already deals with. The advertised rates are the starting point, and how flexible a lender is willing to be will depend based on the borrower’s financials.
Businesses with a fixed term that is not due for renewal can assess whether breaking it is worthwhile. Break fees are minimal in a rising market, according to the source material, which makes switching or renegotiating less costly than it would be when rates are falling.
Borrowers comparing offers should weigh application and account fees, and the effect of any cashback or legal fee reimbursement, rather than judging on the headline rate alone. For those weighing a change, the practical step is to negotiate, including with a mortgage broker.
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