Mortgage wars: Home loan rates fall — but not everyone wins
Sliding property values can still lead to bank penalties, warns broker
The mortgage war is back on, with banks making more cuts to fixed home loan rates and one offering a record low 3.55 per cent over one year.
As of yesterday Kiwibank cut its one-year rate by 24 basis points to 3.55 per cent and its two-year rate by
14 basis points to 3.65 per cent. According to interest.co.nz, the Kiwibank rate is now the lowest among the major banks, with ANZ, BNZ and Westpac all offering 3.69 per cent fixed over one year.
Its rate is also the lowest over two years, with ASB the nearest major offering 3.69 per cent over two years.
The rate cuts come after the official cash rate was unexpectedly cut by 50 basis points to a record low of 1 per cent last week.
The initial response saw the banks only trim their fixed rates by small amounts — just four basis points.
But this week rates have fallen further.
Mark Brown, head of fixed income at Harbour Asset Management, said global interest rates had fallen sharply over the last few months bringing bank funding costs down.
Since the OCR cut last week wholesale rates had fallen further, he said.
Both ASB bank and Westpac have raised money through bond issues in recent weeks.
Brown said ASB raised $600 million this week while Westpac raised $900m before the OCR cut.
The banks offered to pay investors 85 basis points over the five-year swap rate which he said was lower than had been seen for years.
The ASB bond will pay investors just 1.83 per cent while the Westpac rate was set at 2.22 per cent.
Previously the spread had been set at 95 basis points over the swap rate.
He said the banks were able to do that because of the weight of money looking to invest in the fixed-interest market.
“The appetite for fixed interest has been strong. Institutions have been happy to buy at tighter spreads than they have before.”
Bank bonds were being seen as safe haven investments in times of turmoil with markets falling as concerns over the potential for a global recession mount, he said.
Mortgage brokers said the bank fixed home loans rate were now at an “unprecedented level” but could still fall further.
“We are in uncharted territory,” said John Bolton at Squirrel Mortgages. He said rates could still go lower pointing to Australia where mortgage rates have hit 2.99 per cent on the same official cash rate as New Zealand. “There is strong potential for rates to keep slipping,” he said.
But Bolton said the flipside of the coin was that rates were falling because things were looking pretty scary in the global economy.
Karen Tatterson, a mortgage broker at Loan Market, said those wanting to break their mortgage and secure a lower rate should be cautious as they could be hit with high fees.
“It is worthwhile having that conversation and getting a quote.”
But she said only those due to come off their fixed term soon were likely to save money.
Those who had less than 60 days to go could book the rate in, she said.
But Bolton said he was urging clients not to break their mortgage.
“My message is it doesn’t make sense to break. Even if you break now the rates might be lower in another six months,” he said. “Just wait and you will probably get an even better rate.”
Tatterson said not all borrowers were winning in this market.
She had heard of a case where falling property prices in Auckland meant a borrower had gone above the
80 per cent loan to value threshold and had been told by their bank they will now need to pay a higher interest rate.
Those with lower equity face interest rates of 60 basis points or more above borrowers who have equity of at least 20 per cent in their home.
“There are a lot of people in a good space but there are some people who are going to be disadvantaged.
“If you budgeted on paying below
4 per cent and now have to pay above it that can have a big impact on a person’s financial wellbeing,” she said.
Those most at risk were people who bought at the peak of the market in 2016 with deposits just over 20 per cent who were facing falling house prices. But Bolton said people would have to ask to borrow more money to trigger a revaluation of their property by the bank.
He said it could mean first-home buyers in Auckland have to wait longer before they build up enough equity to get access to cheaper interest rates.
“They might have longer to go to get a good rate. But entry level house prices haven’t dropped that much in Auckland.”
Bolton said some people who tried to break their mortgage would be surprised at the fees and he warned that some people in certain situations could be badly affected like those wanting to sell up because of a divorce.
But he said the vast majority of people would benefit with over 80 per cent of fixed-term borrowers set to come up for renewal within the next two years.
“Make the most of it, pay off debt, but do not get stuck in this space where you can’t afford interest rates to go up.”