Kiwis who holiday in Australia can't help but notice their home loan interest rates.
The carded rates are lower than ours and seem like a bargain.
Commenters on interest.co.nz have noticed as well.
Some have drawn the conclusion that "those Aussie banks are ripping off us Kiwis" (or words to that effect).
The assumption is that the banks are the same on either side of the ditch, and that they are essentially wholesale funded from cheap offshore money.
But is that true?
Firstly, lets look at the home loan interest rates.
Based on carded rates, mortgages cost about 100 basis points more in New Zealand than in Australia.
This table uses today's rates, sourced from each bank's website.
The data is as at 4pm, Wednesday, September 3, 2014.
| ---------------- Home Loans ---------------- | |||||
| Variable | 1yr fixed | 2yrs fixed | 3yrs fixed | ||
| New Zealand | % | % | % | % | |
 |
6.74 | 5.75 | 5.99 | 6.49 | |
 |
6.75 | 6.09 | 5.99 | 6.19 | |
 |
6.74 | 5.99 | 5.99 | 6.19 | |
 |
6.59 | 6.09 | 5.99 | 6.19 | |
| Average New Zealand | 6.71 | 5.98 | 5.99 | 6.27 | |
| Australia | % | % | % | % | |
| ANZ | 5.88 | 4.94 | 4.99 | 5.09 | |
| CBA | 5.90 | 4.94 | 4.99 | 5.09 | |
| NAB | 5.88 | 4.89 | 4.94 | 5.04 | |
| Westpac | 5.98 | 4.99 | 5.04 | 5.14 | |
| Average Australia | 5.91 | 4.94 | 4.99 | 5.09 | |
| NZ costs more than Australia | 0.80 | 1.04 | 1.00 | 1.18 | |
So, if you are a borrower, it seems pretty clear you would save money if you actually were able to buy an equivalent house in Australia, all other things being equal.
But it turns out the reverse is true if you are a saver.
Here is the same type of table using the same sources for term deposits.
| ---------------- Term Deposits ---------------- | |||||
| 6 mths | 1yr | 2yrs | 3yrs | ||
| New Zealand | % | % | % | % | |
|
|
4.10 | 4.30 | 5.00 | 5.25 | |
|
|
4.15 | 4.50 | 4.75 | 5.00 | |
|
|
4.10 | 4.30 | 4.75 | 5.00 | |
|
|
4.10 | 4.30 | 4.75 | 5.00 | |
| Average New Zealand | 4.11 | 4.35 | 4.81 | 5.06 | |
| Australia | % | % | % | % | |
| ANZ | 3.05 | 3.30 | 3.40 | 3.60 | |
| CBA | 3.05 | 3.20 | 3.10 | 3.60 | |
| NAB | 3.10 | 3.35 | 3.40 | 3.60 | |
| Westpac | 3.00 | 3.30 | 3.40 | 3.70 | |
| Average Australia | 3.05 | 3.29 | 3.33 | 3.63 | |
| NZ returns more than Australia | 1.06 | 1.06 | 1.49 | 1.44 | |
Savers in New Zealand get 1.26% p.a. more that those in Australia.
To save you the trouble, we have averaged the difference over both tables, over all terms, and New Zealanders get 0.26% more in term deposit benefits than we pay in extra mortgage costs.
The reasons are varied however.
Firstly, even though the same bank brands operate in both countries, and are owned by the same bank holding companies, they are regulated by different central banks.
Each imposes different standards.
The RBNZ imposes on locally incorporated banks a core funding ratio, forcing them to source most of their funding domestically. They do not have unfettered freedom to borrow offshore, nor even access 'cheaper' funds from their parent companies.
Secondly, they are credit rated independently and the ratings agencies look at them closely as stand-alone businesses.
Thirdly, as independent businesses, they pay their own credit spreads.
Fourthly, Australia has deposit insurance and for that benefit there are costs, costs that savers 'pay'.
And finally they operate in different markets with quite separate drivers of supply and demand. The credit cycle differs, and credit demand is generally rising in New Zealand at this time, and stable or shrinking in Australia.
But overall, it is clear, Kiwis are coming out ahead at present.
And by the same analysis, banks are making 0.26% less in New Zealand than Australia.
I am making no claim that this is anything more than a comparison based on carded interest rates today.
Readers who have other insight should use the comment section below. (Please stay on the subject, please add insight. Please don't rant.)
4 Comments
Interesting that this comparison arose from comments. Good evaluation of the issue DC...
The other factor is the propensity of the borrower/customer to pay a certain price level. Just like any producer, a supplier can't necessarily pass on all production cost plus a margin. There has to be a value proposition that the customer agrees with.
There seems to be some pressure on borrowing costs, given the slowdown in loan growth rate.
Also given that many of our families now span both sides of the ditch, some of the common factors are. - Would you buy a property to live in if you did a 3 or 5 year stint in Aus given the interst rates, would you leave your term deposits in NZ? Should your kids buy an apartment in Aus? Maybe this is why the issue is of interest to kiwis.
Thank you David, you may have saved the one or two of us who dare to bother, a lot of further posting trying to point out the facts to the few who don't understand them. The supply and demand equattion that some quote misunderstands the three factors involved in that: at a wholesale level that determines the base swap rate at which banks hedge, the supply and demand for bank risk which determines funding spreads banks pay above that, and then lastly and least importantly in the current environment, the demand of otherwise from borrowers that can determine bank margins, normally the more minor of the three parts of the cost of a mortgage.
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