Some Aussie banks are offering lower fixed mortgage rates in New Zealand than they offer in Australia, even as their OCR is 1% lower across the ditch

Some Aussie banks are offering lower fixed mortgage rates in New Zealand than they offer in Australia, even as their OCR is 1% lower across the ditch

Friday's surprise mortgage rate cuts by HSBC raises the question again about how the rates being offered in New Zealand compare with those offered in Australia, by basically the same banks.

These banks operate with a central bank policy rate of 3.0% in New Zealand (and likely to go lower), and 2.0% in Australia (and likely to hold at this level).

What is unusual about the HSBC offer is that their 'special' New Zealand rates are now lower than what they offer their Aussie customers.

And they are not the only bank doing that. Westpac's 4.69% two year 'special' is lower in New Zealand than their equivalent rate in Australia.

Here is the current comparison:

Mortgage interest rates
August 1, 2015 Floating 1 year 2 years 3 years 4 years 5 years
New Zealand % % % % % %
   ANZ 6.24 4.89 4.99 5.59 5.75 5.79
   ASB 6.25 4.69 4.89 4.99 5.55 5.65
   BNZ 5.99 5.19 4.69 5.29 5.65 5.75
   HSBC 6.35 4.49 4.49 4.49 5.09 5.29
   Kiwibank 6.15 4.89 4.99 5.39 5.75 5.60
   Westpac 6.15 5.39 4.69 5.49 5.75 5.79
NZ average 6.19 4.92 4.79 5.21 5.59 5.65
   Swap rates 3.10* 2.88 2.89 2.96 3.05 3.17
   margin to swap 3.09 2.04 1.90 2.25 2.54 2.46
             
Australia            
   ANZ 5.63 4.54 4.44 4.54 4.74 4.74
   CBA (ASB's parent) 5.45 4.64 4.64 4.64 4.84 4.94
   HSBC 5.45 4.79 4.79 4.79 4.79 4.79
   NAB (BNZ's parent) 5.43 4.59 4.59 4.59 4.79 4.89
   Suncorp 5.54 4.54 4.54 4.44   4.74
   Westpac 5.48 4.89 4.79 4.89 4.89 4.79
AU average 5.50 4.67 4.63 4.65 4.81 4.82
   Swap rates 2.14* 2.04 2.09 2.19 2.43 2.57
   margin to swap 3.36 2.63 2.54 2.46 2.38 2.25
   * 90 day bank bill rate            
             
differential (NZ-AU) +0.69 +0.26 +0.16 +0.56 +0.78 +0.83

These are the carded rate differentials - negotiation can lower your actual rates, and your effective costs will be affected by incentives and fees. (Home loan fees are more pervasive in Australia, so much so that they require banks to declare "comparison rates". The above table does not account for those costs.)

We did a similar comparison in February this year.

What this latest review shows is how much closer New Zealand clients are to getting rates similar to those available in Australia. For the two year fixed rates, the average variation is less than 0.2% and on an individual basis could even be lower here.

It also shows how much lower bank margins-to-swap are in New Zealand than Australia. This is an unexpected finding because New Zealand banks have higher net profit margins than their Aussie parents. Clearly New Zealand banks operate with substantially better cost control; they are leaner and pass on more of that efficiency to their clients than do their trans-Tasman cousins.

  Floating 1 year 2 years 3 years 4 years 5 years
  % % % % % %
NZ margin to swap +3.09 +2.04 +1.90 +2.25 +2.54 +2.48
AU margin to swap +3.36 +2.63 +2.54 +2.46 +2.38 +2.25
             
Aug-15 differential (NZ-AU) +0.69 +0.26 +0.16 +0.56 +0.78 +0.83
Feb-15 differential (NZ-AU) +1.02 +1.06 +0.92 +1.00 +1.01 +1.11

Basically, even though wholesale interest rates are higher in New Zealand, New Zealand banks offer tighter, more competitive margin pricing than their Australian counterparts.

Lets hope we can keep our advantage over them on Saturday night in the rugby.

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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Dilemma: fix or wait?
Every month you float and wait you are paying a hefty premium of 6.15 - 4.69 = 1.46.
If you fix at 4.69 you risk missing the possible 4.2% before Xmas.

My bank manager recently said to me the economy will have to be really bad before rates get down to 4.2. It is possible if one considers where dairy is still to fall to.

I'm willing to pay 8.4% instead of 4.2% but only half as much money for the house, much less riskier proposition with room for capital gain. :)

3.99% will be available within 6 months probably fixed for 3 or 4 years.

So may pay to float currently. The banks may not be able to cope with too many Dairy farms liquidated, or too many non-Auckland houses declining in value.

Except as Grant A points out below if we have GFC mkII wholesale rates will rise even if the OCR is 2% or less. In that case a rolling 6months fixed might be a good idea? not sure as you are then locked in. Its crystal ball stuff, about all I think say is when we get a MkII I think it will be very fast impact.

well said tim12.

Some of you may want to have a look at the chart section on this website and look at current mortgage debt we owe right now.... I have put a detailed comment on there and arrive at 210Billion estimation of mortgage debt by Xmas. Total NZ public and private debt combined is now over 200% of GDP. Mortage debt growing by over 1billion per month and that was "before" RBNZ started cutting rates. If you have a mortgage in Auckland you should be very very scared of what is coming. But dont worry, most of NZ will just borrow more money to buy an asset which is way way overvalued, so if you are one of those people you are just normal and the govt will bail you out by raising taxes again.... hmmm... kiss goodbye to KiwiSaver (GOVT will nationalise it) and kiss goodbye to interest free student loans and you can probably kiss goodbye to your job too.

And if that proved true, you can kiss goodbye to low mortgage rates as well if household mortgages and dairy severely impact NZ banks - they will struggle to raise funds anywhere at any price, and what they can won't be at the same price...some have little understanding of what drives rates.

Correct Grant A.

I remember talking to a work colleague 12 months ago. She had just bought her first home and took on a mortgage the value of 6 times her annual wage. Her response was "I dont understand the economic side of things, I just want to buy a house".

Falling dairy prices will push NZD down and inturn push up the cost of borrowing. It is entirely possible that a cut in interest rates will not flow through if cost of borrowing the money rises from a fall in NZD.

Another thought is, how will parent AUS banks act if they need liquidity? Both sides of the tasman look overvalued in terms of house prices. This must eventually hit bottom line and liquidity.

at the moment the failing dairy is pushing DOWN the cost of borrowing. I still very vocally remember the rise in dairy pricing pushing UP the cost of borrowing. Dairy is such a large component of NZ economy, that if dairy farm revenue drops the RBNZ has to compensate.

You think RBNZ would be providing feedback into places like this forum to help encourage NZ to build in other sectors to stop that effect.....(by growing what is better prospects). The beauty of places like this is they can put _opinion_ pieces forward, not official policy, and people can tear it apart (or adopt it) without having to hire real consultants.

The lower NZD won't be a factor in itself Quality Guy, but in the 2008/10 period of the GFC when banks stopped lending to each other globally (where NZ banks source a percentage of their funds), and then at a MUCH higher prices when they did gain, banks funding costs went from something like 5-10bps to well over 150bps, and that will be passed onto borrowers as it was during the GFC (but with falling base rates households didn't see it) - its now back below 70 depending upon the term and in a downtrend. I don't think its going to happen, but if there was a NZ banking issue around household debt and dairy, another 100bps onto rates again would be a very realistic possibility. Those that wish bad things upon over-leveraged households, dairy business and consequences for banks, better be cashed up.

I think we are heading to a >GFC MkII myself, so banks locking up is a real possibility.

Literally cashed up though ie not in a bank, as if its on deposit, well the haircut could be a no1, the only Q is on which part of the body. PS is anybody really wishing for this directly? quite a few indirectly as they are upset they are not getting the returns/interest they think they deserve.

"banks funding costs went from something like 5-10bps to well over 150bps" indeed the banks hid behind the OCR, if however the OCR is 2% then the tide is out and we see what ppl are wearing and the banks will take some of the flak they deserve.

to wish bad things on people wouldn't be the motive. In a market economy people pay for their actions. those that can see the signs before it happens make plans accordingly. My experience (as warren buffet says) is to go against the tide. Jump in when everyone else is selling and visa vesa. If these comments make just one person reassess their debt levels and "factor in" borrowing costs then I consider I have "saved" someone. But the tide is what it is and the underlying fundamentals will drive the final result. There is a significant number of people that know something is wrong with this debt fueled growth economy we currently have and they do have a certain proportion outside the banking system as an insurance for the worst case scenario. As for kiwisaver - one protective measure is to set that to cash. On a timeline scale, barring any worldwide collapse, I think NZ will keep trucking along for another 2-3years before things start to change. Property gambling could be profitable during the interim in my view.

Disagree Steven, it will be part of bank funding costs and get passed on with no apology anymore than it would as a result of a OCR increase or some other cost increase - costs get passed on as the market will stand, just as it would be in any industry. But if they can't be when it comes to banking, there would be alot less lending and a credit crunch coming. The redeeming feature now, as compared to 2008/10, is that the banks are alot longer funded and any issue will take alot longer to be reflected in rates

I think the september Fed meeting will be interesting (as will this week's milk Auctions), Most think the fed will not raise rates. I think they will raise rates to head off some inflationary impact. Its very interesting also to see most of the QE (3.7Trillion from memory) is held by the banks in their Fed reserve accounts and hence - out of the money supply. What surprised the hell out of me was the Fed paying interest on those reserve funds - 2016 projected interest cost of over 300M which they effectively print.

Found this article on wiki: https://en.wikipedia.org/wiki/Excess_reserves

I think the fed will do one raise of 25 bp not because they need too but because they can see the distortions zero rates are having and they are more worried about growing asset bubbles

Very true sharetrader, plus you need to have something to actually cut in the inevitable the down cycles years when they do occur, otherwise you're back to money printing, something that will have a lasting hangover for years if not decades (we're almost up to decade one now and starting to appreciate the implications for bubble blowing globally)

Yes agree QG, not sure it will be Sept specifically, but before year's end for the Fed is highly likely. The impact for us is a lower than otherwise NZD/USD, probably limiting further OCR cuts here to maybe only another couple, and probably an underpinning of our longer-term rates. If its next year for the Fed, then I suspect we'll have a decent NZD rally/correction, and a risk of an OCR below 2.5% if the RBNZ isn't impressed with the NZD trend, especially if the dairy auctions remain poor - I think the former scenario is the more likely though for the moment.