Have banks been more generous to borrowers in their mortgage rate cuts or slugged savers harder with cuts to term deposit rates?

Have banks been more generous to borrowers in their mortgage rate cuts or slugged savers harder with cuts to term deposit rates?

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By Gareth Vaughan

The mortgage and term deposit rate cuts undertaken by the banks over the past few weeks have been more generous to borrowers than it has hit savers in the pocket. However, the falls in swap rates have been bigger than the cuts made by banks to either benefit borrowers or slug savers.

Analysis by interest.co.nz shows that although the average advertised interest rates paid by the banks on minimum deposits of NZ$10,000 fell by between eight and 21 basis points for one to five-year terms, the average mortgage rate was cut by between 22 and 39 basis points on one to five-year advertised fixed-term mortgage rates between April 20 and June 1.

Over the same time period one to five-year swap, or wholesale, rates the banks themselves borrow at, fell by between 41 and 58 basis points.

Data collected by interest.co.nz shows the average one-year bank mortgage rate was 5.63% on April 20 and had dropped 33 basis points to 5.30% by June 1. Over the same time period the average one-year term deposit rate fell eight basis points to 4.41% from 4.49% and the one-year swap rate dropped 41 basis points to 2.38% from 2.79%.

Over a two-year timeframe the average mortgage rate fell 22 basis points to 5.59%, the term deposit rate 14 basis points to 4.70%, and the swap rate 48 basis points to 2.47%.

Over three-years the mortgage rate fell 31 basis points to 5.79%, the term deposit rate 15 basis points to 4.96% and the swap rate 55 basis points to 2.62%.

Over four-years the mortgage rate fell 33 basis points to 6.16%, term deposit rate fell 18 basis points to 5.17% and the swap rate dropped 57 basis points to 2.83%.

Over five-years the mortgage rate fell 39 basis points to 6.51%, the term deposit rate fell 21 basis points to 5.42% and the swap rate 58 basis points to 3.03%.

See all bank advertised mortgage rates here and see all advertised bank term deposit rates here.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Over the same time period one to five-year swap, or wholesale, rates the banks themselves borrow at, fell by between 41 and 58 basis points.
 
Gareth which do you mean because swap rates are unfunded rates? They are the semi-annual bond equivalent of the fixed rate to pay or recieve against the rate to receive or pay  floarting, for six month in this case. It's an exchange or bucket net payment or receipt process. 

Do I understand you right, Steven, that being - there is a difference between a swap and a wholesale rate?

Hi Kate,  yes. Theoretical swap fixed rates are constructed from stacks of FRAs, actual traded rates are determined by flow. Today's tender conducted by the LGFA is an example of wholesale funding. The successful rates paid were well through interpolated swaps. 62 and 74 bps for the 17s and 19s, respectively.

Gareth, I think you need to be clearer with your terminology.  When you say banks fund at these rates, that's not really true is it?  Banks fund the majority of their wholesale funding offshore, which is clearly not denominated in NZ interest rates.  The cost of this borrowing is measured in terms of its final landed cost against NZ wholesale (swap rates).  The cost is therefore expressed as a margin over NZ swap rates.  There is quite a difference between what you're advocating and what actually happens.  Todays long term offshore funding costs for NZ banks are far in excess of the benchmark NZ swap rates.

provided the offshore premium has stayed static, movement in swap rates means there has been a drop in bank cost of funds.

This story was designed to be a comparison of the cuts to mortgage and term deposit rates. Apologies, as it appears that throwing in swap rates has confused things some what.  I only meant to include them as a proxy, or as the basis for fixed mortgage rates. I am well aware that there's more to bank funding costs than swap rates.
Cheers.