Most average bank fixed mortgage rates now lower than average bank floating rates, reprising a rate structure last seen in 2009

Fixed mortgage rates keep sinking.

In fact, the average bank fixed rate for each term out to five years is now lower that the average bank floating rate.

This is the first time this inversion has happened since March 2009.

While there is still a mildly positive rate curve for fixed rates from one to five years, the floating/fixed inversion is a return to a situation that existed for most of the period between 2002 and 2009 (except for a short period in 2003).

While the averages may just have been breached, the 'best rate' levels show just how far the market has slid below floating rates. Only BNZ's seven year fixed rate is higher than floating.

Part of the reason the fixed mortgage rates are so low is that loan demand is only growing modestly. That latest data shows annualised growth of housing credit to September of 4.7% and tracking down. The Reserve Bank monitoring of weekly 'new mortgages approved' through to November 14 shows volumes actually down 10.4% pa..

In contrast, household bank accounts are swelling fast, growing at about 10% pa.

Banks have deposit growth larger than lending growth.

In the year to September 2014, housing credit grew $8.658 billion, and in that same period household deposits (the NZ dollar portion) grew a remarkable $11.628 billion. There is obviously more to bank balance sheets than just these two components, but they demonstrate why the mortgage market is so competitive.

  Lowest rate offer from ...
     
Floating rate / variable 6.59% Westpac
     
6 months fixed 5.80% six banks
1 year fixed 5.39% HSBC
18 months fixed 5.70%
2 years fixed 5.49% SBS Bank
3 years fixed 5.69% SBS Bank
4 years fixed 5.99% ASB
5 years fixed 6.19% SBS Bank
7 years fixed 6.89%

The one/five curve is currently at 84 basis points. On a best-rate basis it is 80 bps.

Whether the fixed curve will invert is not so certain. Today's Reserve Bank inflation expectation survey results (due out at 3pm) are expected to show that neither consumers nor businesses expect inflation to be a threat over the next one or two years. That will continue to undermine the policy imperative to get the Official Cash Rate back to the 4.5% level the Reserve Bank views as "neutral."

The next Reserve Bank OCR review is due on Thursday, December 11.

The central bank will see a continuing trend of borrowers to fix while floating rates are higher than fixed. Only revolving credit arrangements hold borrowers on floating rates.

Currently 72.7% of the mortgage book is fixed. When this 'inversion' last existed, the proportion of the mortgage book that was fixed reached 87.5% in August 2007.

The Reserve Bank, however, looks at the proportions that are due to reset with the next twelve months. This is currently 60.9%, but that is down from 73.2% one year go. In the previous cycle when fixed rates were dominant, it dropped to 37.7% in June 2007.

Maybe we are on a track back to the future.

Back in June 2007 floating rates were 9.9%, one year fixed rates were 9.0% and five year fixed rates were 8.7%, so maybe not that future, but a low-rate inverted equivalent.

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4 Comments

Those people who were scaremongered into fixing a few months back should have some comeback.
 
It was clear to myself and other commenters that the scaremongering to fix was unjustified.
 
Do we have a Wall street attitude here where bankers can openly lie to get people to fix at higher rates than are necessary?
 
Why are there no consequences for economists and other leading figures when they do these thiings?
 

I fixed a loan few months back Mike. Obviously in hindsight it was a mistake but I'll take it on the chin. Anyone blindly following the advice of bankers and economists is mislead. There's lots of info out there. We all make our own decisions. If the bankers and economists got it right all the time the game would be a no-brainer. As it stands I guess they get it right 50% of the time.

The fact that the deposit rates are climbing faster than the lending rates tells me that the loan repayments are too low.
 
Could be that people are upping their mortgages?
 
If it continues it may not end well.
 

Historically, an inverted yield curve has been viewed as an indicator of a pending economic recession. When short-term interest rates exceed long-term rates, market sentiment suggests that the long-term outlook is poor and that the yields offered by long-term fixed income will continue to fall.