Big bank home loan rate cuts continue

ASB is the latest bank to pass on lower wholesale interest rates to customers with fixed mortgages, slashing fixed home loan interest rates by up to 45 basis points.

The cuts, effective from today, include a 45 basis point reduction in the 12-month rate to 5.25% per annum; a 30 bps reduction in the two-year rate to 5.55% and a 35 bps reduction to the three-year rate to 5.75%.

The bank was able to pass on savings from lower funding costs, ASB general manager products, retail and business banking strategy Shaun Drylie says.

Its annual fixed-term home loan rate now matches that of ANZ National and Westpac at a 17-year low.

BNZ’s equivalent rate is slightly at 5.75% - on par with the average floating rate across the major banks.

Kiwibank, the first bank to slash mortgage rates in late April, is offering the lowest one-year fixed interest rate at 4.99% - but that requires borrowers to have 30% equity in their property.

BNZ treasurer Tim Main told NBR ONLINE last week that despite the series of home-loan rate cuts, wholesale funding costs remained high for banks.

“Many banks price off the wholesale curve, which has dropped in recent weeks because of expectation for a Reserve Bank rate cut.
 


“At the margin it’s still costing us more compared to what is maturing.”


On the wholesale market, he expected costs of funding to remain elevated, and to rise, as investors demanded higher premiums against ongoing economic uncertainty in Europe.


“A lot of the cheap funding that may have originated three to five years ago is now sort of running off and is being replaced by more expensive funding in the term space,” Mr Main says.

“I personally think we’re going to see an elevated cost of funds at least for the next 12 to 18 months before we can get some stability from the European and American systems.”

Back home, soft retail sales data, released yesterday, reinforced the view that there is very little room for the Reserve Bank to raise the OCR in the short term.

The 2.5% fall in core retail sales over the first quarter was expected after the elevated levels of the Rugby World Cup, but not to that magnitude.

Following soft jobs numbers released in early May and amid deteriorating global market sentiment, financial markets aggressively priced in a chance of an OCR rate cut at the June review, putting it as high at 81%.

But Bancorp Treasury analysis indicates a fall in the value of the NZD over the last week has seen the chances of a rate cut at the next review reduced to 31%.

Meanwhile, New Zealand house price expectations have jumped in the face low borrowing costs and a supply shortage, according to an ASB survey.

A net 45% of respondents expect house prices to increase in the next 12 months, compared to 27% in the three months ended January 31, according to the ASB's Housing Confidence Survey.

A net 21% believe now is a good time to buy, up %, while 43% see interest rates rising in the coming year, up from 27%.

One-year fixed mortgage rates

Kiwibank: 4.99%

TSB: 5.20%

Westpac: 5.25%

ANZ National: 5.25%

ASB: 5.25%

BNZ: 5.75%