Westpac is offering a two year fixed rate for just "2.29%". ANZ's equivalent offer is the same.
These are Aussie offers.
So why are Kiwi's offered 2.79% or 2.95% for the same fixed rate mortgage and told these are 'record low rates"?
Actually, in terms of cost to the borrower, the New Zealand offer is better.
The problem is that the mortgage markets in each country are quite different. The New Zealand market is 80%+ based on fixed rate contracts. The Australian mortgage market is similarly dominated by floating rate arrangements.
But it is more complicated than that. Our mortgage contracts are relatively simple affairs; you borrow over the term at a specified interest rate.
However in Australia, the stated interest rate is just the start. There are bundle and package fees, and related 'discounts', to complicate matters. Their regulators require banks to publish a Comparison Rate to expose the true costs involved. And 80% of all Aussie home loans are wrapped up around these opaque bundle arrangements.
We have been tracking a New Zealand - vs - Australia mortgage comparison for more than five years now, publishing the shifting penalty that Kiwi home owners pay compared to Australians. We last did that a year ago.
And now it is no longer a 'penalty' - Kiwis are getting lower home loan rates.
And this comes at a time that the Aussies are figuring out that fixed deals are a better deal, even after their opaque fee load is taken into account
And for the first time in our memory, pricing for New Zealand borrowers has shifted to our advantage. Home loans are cheaper in New Zealand than Australia.
Here is the current comparison in the way we have done it consistently since 2015:
Residential mortgage interest rates
|May 31, 2020, <80% LVR||Floating||1 year||2 years||3 years||4 years||5 years|
|margin to swap||4.23||2.50||2.51||2.84||3.08||3.09|
|CBA (ASB's parent) **||4.27||4.13||3.99||3.87||3.98||3.93|
|NAB (BNZ's parent) **||3.45||4.18||4.04||3.91||3.95||3.87|
|margin to swap||3.49||3.69||3.44||3.17||3.35||3.15|
|* 90 day bank bill rate|
|** these are discount package rates that come with big annual fees|
|differential in May-19||0.39||-0.14||0.00||0.07||0.09||0.30|
|differential in Nov-18||0.67||-0.12||0.21||0.35||0.79||1.05|
|differential in Nov-17||0.89||0.55||0.64||0.90||1.33||1.39|
|differential in Jan-17||0.28||0.13||0.59||0.86||0.89||0.94|
|differential in Aug-15||0.69||0.26||0.16||0.56||0.78||0.83|
|differential in Feb-15||1.02||1.06||0.92||1.00||1.01||1.11|
The benefits here are substantial - averaging about 1% for fixed one and two year rate contracts.
Interestingly, the penalty Kiwis pay for floating rate deals got worse in the past year compared to the Aussie options. But that is a penalty which applies to less than 20% of homeowners, probably a lot less if you exclude the SME lending that is done within the bank's mortgage books.
The real commercial reason home loan pricing hasn't fallen in Australia and New Zealand is that the Aussie operations are cost-heavy. Taking ANZ as an example, they report a group NIM (net interest margin) of just 1.7% whereas the New Zealand ANZ operations were still achieving 2.1% in the same period to March 2020. So despite charging higher effective rates to customers of the largest component of their loan book (mortgages), the Aussie bank ended up with a smaller NIM.
Wholesale money is needed to balance the duration matching requirements.
|May 31, 2020||Floating||1 year||2 years||3 years||4 years||5 years|
|NZ margin to swap||+4.23||+2.50||+2.51||+2.84||+3.08||+3.09|
|AU margin to swap||+3.49||+3.69||+3.44||+3.17||+3.35||+3.15|
|and this compares with the levels in May 2019 as follows ...|
|NZ margin to swap||+4.08||+2.39||+2.47||+2.54||+2.90||+2.94|
|AU margin to swap||+3.94||+2.78||+2.75||+2.75||+2.99||+2.82|
|and compares with the levels in November 2018 ...|
|NZ margin to swap||+3.86||+1.93||+2.04||+2.20||+2.71||+2.69|
|AU margin to swap||+3.19||+2.05||+1.83||+1.85||+1.92||+1.63|
|and compares with the levels in November 2017 ...|
|NZ margin to swap||+3.93||+2.51||+2.42||+2.59||+3.14||+3.08|
|AU margin to swap||+3.28||+2.21||+2.08||+2.03||+2.05||+1.98|
Here too we see tighter margins to swap in New Zealand for fixed rates, and tighter in Australia for floating.