Bank competition offers chance to cash in
‘‘The main implication of these changes is that the cost of funds for banks will increase, and we expect that banks will pass on a portion of the higher cost of funds [to borrowers],’’ she said. ‘‘Equity capital is the most expensive form of banks’ fundi
Homeowners have another chance to cash in on bank competition to pay off their mortgages faster.
Westpac and HSBC are now offering a 3.95 per cent home loan rate to qualifying borrowers. Westpac’s deal is for one year and HSBC’s for three.
The rates are as low as any that have been offered in the New Zealand market.
There are some catches: Westpac’s deal requires borrowers to have at least 20 per cent equity and their income credited to a Westpac account.
HSBC’s offer requires a home loan of at least $500,000, or $100,000 in savings with the bank.
But taking advantage of the rate should pay off.
If a borrower switched from the current market median three-year rate of 4.89 per cent to the 3.95 per cent rate, they could reduce fortnightly payments on a $500,000 mortgage from $1334 to $1211.
If they switched the rate and kept the repayments the same (and were able to maintain that interest rate difference for the life of the mortgage), they’d knock off the mortgage repayments three years earlier and would save more than $125,000 in interest.
Of course, rates are likely to move over the decades that most people have a home loan. But any extra paid off when interest rates are low reduces the impact of rate rises in future.
ASB economist Jane Turner said she expected retail borrowing rates to increase by 100 basis points from now until a peak in 2022.
That would mean the median 4.89 per cent rate would turn into 5.89 per cent.
‘‘However, if economic growth, wage growth and inflation pressures continue to underperform expectations, it is possible retail borrowing rates won’t rise quite so high or possibly peak later.’’
Turner said changes proposed by the Reserve Bank that would require banks to hold more capital in reserve would increase the cost of borrowing. A programme used by The Warehouse to get young people into employment is being rolled out to other employers.
The retailer’s Red Shirts in the Community programme is being expanded through Accelerator, a digital learning programme built by the Ministry of Social Development, The Warehouse and Youth Hub.
Accelerator is expected to be the country’s largest public-private partnership in the area of social inclusion and youth development. About 1200 young people are expected to complete its pilot programme this year, starting in May. ASB economist Jane Turner
The Warehouse chief executive Pejman Okhovat said that since the Red Shirts scheme started three years ago, about 1100 young people who were not in employment, education or training had been involved.
Participants spent three weeks in a The Warehouse store, receiving training in customer service, communication skills, personal presentation, stock management and basic health and safety.
They also learnt about how to prepare for an interview, apply for a job, prepare a CV and look for work, with three months of follow-up pastoral care from a mentor.
The programme provides credits towards NCEA Levels 1 and 2. In the last pilot, The Warehouse says 70 per cent of the graduates found work.
Based on that level of success, Accelerator hopes about 700 of the young people signed up this year will find a job and it’s looking for nine other industry partners to help. Okhovat urged other industries to get involved.
Accelerator will recruit participants via Youth Hub, a social platform where young people can connect with prospective employers and others, and upload their CVs.
Youth Hub founder Senthil Perumal said Accelerator was not only about getting work experience but also addressing the young person’s overall situation.
‘‘It puts them into an eco-system where youth services, organisation and educators, everyone is there . . . When they get out of the programme they can just continue that journey and upskilling themselves.’’ economist Cameron Bagrie, of Bagrie Economics, said he expected little change in mortgage interest rates.
‘‘We may see a change in the mix, with higher bank margins offset by a lower official cash rate. [It’s] all very dependent on inflation remaining tame,’’ Bagrie said.
‘‘I can’t see growth being strong enough to drive inflation up but [I] do worry about the amount of cost pressures.
‘‘The scale is difficult for some sectors to absorb, so we’re seeing inflation slowly rise while growth is slowing.’’
‘‘We expect higher minimum capital requirements will directly increase bank funding costs by at least 50 basis points.’’