So I am confused...

The banks have all picked up loan insurances from the NZ government - yes even the Aussie banks, so hopefully this is only for accounts in NZ and that it will be heavily audited to ensure this.

Who pays for this - The NZ taxpayer. Who wears the risk for this, the NZ taxpayer.

As I understand it (in simple terms), interest is charged to offset the opportunity costs lost by not being able to invest that money elsewhere. There is also a risk factor attached to this as well.

So my confusion is that the NZ taxpayer is wearing more risk on behalf of the bank, yet the banks still maintain interest rates which are not reducing at anywhere near the same rate as the OCR. This to me is clearly profiteering at the expense of the taxpayer.

One could argue that the banks have played a large part in starting this financial crisis (who else thought 95-100% finance was a dangerous thing?) and should be feeling some pain from the error in their ways. Yet I am sure that the balance sheets will continue to show high levels of margin.

I for one will be interested in the year end reports and would hope that the days of huge profits are rapidly slowed.

Tash, they signed up to that deal, so why should they be allowed to break it, without a large break fee. A contract is a contract, and why should the bank lose hundreds of dollars a fortnight because of that. The economy isn't nessessarily going to benefit either, becuase they may just use that money they are saving, to pay of the mortgage quicker.

There's a lot talked about break costs for understandable reasons.
The fact is they are a real cost not just one the banks are passing on as a way of making money. If you have a 5 year loan that was taken a year ago the chances are that the bank will have written that loan at a skinny margin as the market was far more competitive then. So a bank has a loan on it's books that it's earning say 0.70% from for 5 years and they've hedged that funding so are stuck with. Of course they would love to be able to take that customer out of that loan for free and put them into say a 2 year one now and make a return of around 1.50% or more, but they can't as they're stuck with their contract.
Break fees are a real cost and Rob is spot on.

Anyone with any nous should have broken their fixed rate last October or November and gone floating then fix later on. You can't blame the banks for charging break fees.

Shuttle you should be looking at high dividend yield shares, gold and maybe even a cashflow positive rental property.

Bernard

Can the banks really pass on these manipulated low local rates when in fact wholesale foreign lenders refuse?

Read more here at Alert: 29/01/09 -

http://www.omo.co.nz/

Crikey everyone wants to be bailed out.

A fixed rate is exactly that. They lower than a floating rate for good reason. Surely people take on a fixed rate because they know they can afford the repayments and don't want any interest rate risk.

The biggest lesson of this whole sorry mess is that people have little clue about financial matters.

"One of the ladies in the office here has a mortgage of $630,000 fixed for 4 more years. The bank told her that the fee would be $62,400 to break the fixed interest rate "

There are real issues here i think.

The banks never expected rates to go this low. The banks did everything to lend this money out - even to the point of total stupidity. There is room for negotiation there and some kind of outside party needs to be involved. Given the support of the NZ tax payer the largely foreign owned banks can now rebuild their balance sheets to support lower share prices which must influence their capital requirements and lower security from falling house prices which must also influence their lending requirements while still enjoying absolutely the same profits they got before with very few losses to date *while* also getting greater profits via lower OCR rates they are not passing on.

Many NZers never wanted the banks to lend so insanely to the population. And those NZers who took on those loans dont deserve all of the blame for it in my view.

On the other hand those who worried about debt and who were prudent are being punished. Even so some kind of negotiation must be in order.

10% penalty to break a loan when the ocr is at a record low?? You have to be kidding me surely??

Andrew - you have hit the nail on the head as to why the banks deserve to offer relieve here. There intentional overlending of created credit massively increased the money supply in circulation. This increased money supply ended up in the hands of an insider few due to a lack of integrity of regulation in almost every market sector. When the few had monopolised the money supply they then set about monopolising the necesities of life of the masses. This distorted the market fundamentals of supply/demand and what the market can bear. This oversupply of money in circulation concentrated in the hands of the few saw the few paying inflated prices for markets they sought to monopolise. This caused hyper inflated prices and an ever increasing disparity for those in the realsector who sought those assets for more traditional purposes.
International banking practice as handed down by the BIS most definitely had the major part in the greatest inflation bubble in recorded history and they now must give up their fraudulent gains and assists those of the realsector that are now sitting paying exorbitant interest rates, that were after all originally increased under the guise of fighting the inflation. Also those of the realsector sitting in positions of negative equity well beyond the historical norm.
It is time for debt relieve and the control of debt to be put in the hands of people who can be held to account by the people.

I never thought I'd say this, but I now believe Tony Alexander will be right - house prices will only fall another 5% before flattening out then starting a slow rise
Lots of people in the same position as me (early 30s and looking to buy our first house) are now talking about it nearly being time to buy with interest rates dropping lower and lower and prices already down about 10%. Just one more drop and lots will start to jump in.
So, sorry to Bernard and the other doom merchants, I can't see 30% drops happening (not that I ever thought that would happen - I always thought 20% drop max)
But still, another 5% will bring it close to a 15% drop, and at least Bernard was a provocateur in a time when no one thought prices would ever drop even 1%

The Aussie banks have a mandate to return a profit for their shareholders so they will take any cut in the OCR and only reflect a small percentage of that to borrowers.
Like wise with Kiwi Bank.
A prudent borrower should be able to play off a couple of banks for the best deal, and, at least the borrower knows that there should be some margin to play with.
Do, or will the banks play ball.