New Classic rate of 4.35% lays down a very competitive marker ahead of an expected OCR rate cut

BNZ has jumped the gun on the expected Reserve Bank Official Cash Rate rate cut this Thursday.

It unveiled a one year carded fixed home loan rate on Friday (September 4) of 4.35% under its "Classic" branding.

This requires borrowers to have at least 20% equity, and their everyday banking and one other product with BNZ.

The offer started Friday and is stated to run until Friday September 20, 2015.

At 4.35%, this rate is now the lowest home loan rate available in the New Zealand market, and the lowest since the 1960s.

This new rate trumps HSBC's 4.49% rate available to its Premier customers.

Interestingly, the one year BNZ rate of 4.35% is now lower than the equivalent rate offered by its parent NAB in Australia. The NAB rate is currently 4.49%. BNZ now joins Westpac and HSBC is offering lower rates for selected fixed rate terms in New Zealand than in Australia.

Wholesale rates are still falling. They are low enough to support these new low rate offers, and still allow borrowers to negotiate hard for below-card rates.

The mortgage market is all about haggling, especially if you have at least 20% equity in your property.

See all banks' carded, or advertised, home loan rates here. 

Almost all home loan competition is now back focused on the interest rate. Non-rate cash incentives are still there for some banks (including Kiwibank) and while we thought they might disappear altogether, they haven't and they are still worth keeping an eye on. You can see see the current non-rate home loan incentives here.

The new floating and fixed mortgage rates compare at 9:00 am today (Friday) as follows:

below 80% LVR Floating  1 yr  18mth  2 yrs   3 yrs   5 yrs 
    % % % % %
6.24 4.69 5.15 4.89 5.59 5.79
ASB 6.25 4.69 4.69 4.89 4.99 5.39
5.99 4.35   4.69 5.19 5.65
Kiwibank 6.15 4.79   4.65 4.99 5.50
Westpac 6.15 4.99 5.19 4.69 5.19 5.65
             
6.20 4.69 4.79 4.79 4.99 5.59
HSBC 6.35 4.49   4.49 4.49 5.29
6.14 4.69 4.69 4.69 4.99 5.59
6.24 4.69 4.69 4.69 4.99 5.75

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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41 Comments

Crikey, rates, insurance and principal repayments are now going to be higher than mortgage interest on a lot of homes in the regions...

Shhh, you'll just encourage those in that list to gouge a little bit more out of household incomes..

I think RBNZ will do couple of more rate cuts. This will inflate the house prices and will be more harder for first home buyers. Investors are winning. Doesn't look like house prices in Auckland will fall soon!!

i would not be suprised to see .50 cut next thursday if so that will say how well the country is really doing
will also force the dollar down again so expect fuel price rises shortly after

Zero chance of that I'd say Sharetrader. That would imply panic and they're certainly not that - in fact they ticked off Westpac with its forecast of a 2% low only a few weeks ago claiming that would be forecasting recession type interest rate levels. They want the currency down because they need inflation higher, but they're certainly not desperate - we'll get at least another couple of cuts, but if won't come all at once.

Grant except hoping for inflation via the exchange rate is smoke and mirrors and isnt real inflation. Arguably its the RB's way of not lowering the OCR further maybe but it isnt real.

Example model which I'd say has been the world since 2008, 7years of no inflation as experience.

I have $100 in my wallet, $20 is petrol, $20 is rent, $40 is food and other bits and $20 electricity. So OK petrol goes up say $1 I still only have $100 to spend. So $21 on petrol, $20 on rent, $21 on electricity as that is a non-tradeble that is going up as well. That leaves $38 for food and other bits. Please explain how this is inflationary overall in the economy and why with rates going up 5% ish, electricity 5% ish we see dis-inflation and have done for 7 years rather than inflation.

Your answer should be fascinating.

I agree with Grant A, such an action would clearly indicate huge panic at the RB and that would signal others should panic and that would be self-reinforcing. Also I see no immediate NZ event? that forces that or such an external event? that covers the RB's butt and makes it imperative to act.. I think 25basis points is highly probable though, but we'll see.

Great time to be maximising your mortgage repayments and watch your loan principal fallaing instead of going into interest payments.

So pay off debt at a time when debt is cheapest it has been in decades? Not what I would be (or am..) doing

The debt might be cheap but the risk of severe impact is also at its greatest for decades.

Then of course when this blows being 100% in debt or 200% makes no odds really, sadly of course your foolishness will be paid for by the likes of me. Personally Im almost inclined to think debtors prisons should be brought back.

Which it is why finding something that performs better, and borrowing to invest is good, and the desired outcome - without which, if 4.35%p.a. cash can't find an home, how low does it have to go for the banks to cover their loan of 1's & 0's and make their profit (not that real central banks can go bankrupt ;) )

Perhaps the rates are also dropping because what banks are losing in margin they hope to make in volume, and with people waking up to landlording and dairy and farming not being the cash cows they imagined (leaving supermarkets and government) leveraged new borrowing may just be slowing.

http://www.wikinvest.com/stock/Apple_(AAPL)/Data/Debt_to_Equity

Steven: may as write the same letter to Tim Cook, apples debt to equity ratio has more than trippled over past couple of years. Probably should take over his job. Dial back all R & D and expansion paying down debt instead... and lose all market share and the entire half a trillion dollar business in the process

huge difference between you and apple. Apple is doing R&D and is considered a market leader and has a huge cash income/margin. You are doing no R&D and are using someone else money to gamble with in a follow my leader game.

apple took on the debt to appease shareholders and return some of the cash mountain they have. most is offshore and they wont take back to the USA due to they will get stung with TAX. when the next moratorium comes they will move it back and pay off the debt.
they are not the only USA multi doing this so there will be a flood of money back to the US if the republicans get control and get it through congress

Debt-Financed Buybacks Have Quietly Placed Investors On Margin

“The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.” - James Grant Read more

And apples not a publicly listed company using SOMEONE ELSES MONEY to gamble. Far more risky what they're doing. There income is large in absolute terms but less than mine in relation to market cap, so I've got a better PE ratio 12 compared to 17 for Apple. I'm not competing in the smart ph game I'm sticking to the tiny piece of the investment world that i know, and know many times better then tim cook

uh no, their margins are huge and have been sustained for years.

After decades of habituation to a one way play, paying down debt does sound a bit contrarian and probably has not been the perfect strategy while interest rates are falling.
What about when they are at the lowest rates (by some accounts) in 5,000 years - well forever you might as well say.
Might pay to just watch out that greed doesn't get the better of you Simon.

which is where I am at.

Mike B versus Simon. Two diametrically opposed comments. A great illustration that decisions depend personality.
Mike B the investor (in the true sense) Simon the spender. Lets see how that pans out over 30 years.
Me - I would be paying down debt. Increasing ownership. ie. an investor.

How is paying down debt investing in any way shape or form? Its anti-investing. Investing implies spending. Putting your capital and equity to use in a productive way to obtain returns above your personal cost of capital (which if not relying on debt is the opportunity cost of say 3% or less in a bank, if relying on debt, 4.35% borrowed from bank).

If you have 500k capital/equity and are only running say 100k debt at 4.35% (and you think, great now I can pay it all off and be debt free, which my grandparents always told me was a good thing!) then you're being overconservative and lazy in my opinion. Which is fine if you actually are lazy and want to spend your time watching tv...

But active investors view low cost capital that they are able to use for better returns as a bit of a no brainer.

Mike Bs logic would have him view interest free student loans as a great opportunity to pay them off as fast as possible! Dispite the fact that due to inflation the slower you pay them off the less you actually end up paying.

Risk comes from not knowing what your doing. (buffet)

When do you propose paying down your debt? How do you think your debt is ever going to go down?

Where is all that money to cover the cost of that debt going to come from?
Especially when the revenue starts to shrink, or commoditise?

Your statements resemble those of employees who get paid too high of a salary; they can't not conceive of money shortflow, job loss, or other cutbacks. To them there must always be something hidden behind the next door "there just must be"...or peoples' failure is purely because they're not keeping up their game. All those cheap secondhand BMWs for sale in last few crashes, some folks just don't learn.

Where is the cashflow coming from to service this extra debt you're talking about?
Why has the person not already committed extra "loan-ability/worthiness" (must find the technical term for that one day) - if they are doing the job properly then their credit limit / dance card will already be at their service level......therefore increasing that level of debt just because rates are low? the's government/council thinking. Increasing _because_ rates are low now, just means when they lift, and they will, the commitment becomes highly risky and difficult.

Probably with investing when rates are good in NZ, is that rates are good because the opportunities are low for almost everyone.

And for me .... RBNZ showed me. I had good income one year in dairy...so what did RBNZ do? they penalised me strongly by lifting RBNZ - despite mountains of evidence of every side indicating the imminent drop in economic activity in next couple of years. No point holding on for a good year, the RBNZ or government just move the cheese and pocket the cash themselves.

Risk comes from not knowing what you're doing. sure. then you'll understand that the interest rate charged on your student loan is higher than inflation rate - taking longer will cost more; as well as reducing your ability to borrow/leverage to your full service capacity (student loans are not revenue generating, so count as bad debt - especially now that universities have brought in Time Limits for completion. Students now only have a set number of years to complete their degree or diploma, and the cross crediting of passed papers and degrees is downgraded by when they were done....so the loan sticks around well after the benefits are passed = bad debt)

So when are you going to reduce you debt?
When your income shrinks?? Yeah right, when your income shrinks is _too_late_ because you won't have the spare income to delever.
It's important to proactively manage the debt level, delever old earners with surplus while you can, get rid of bad debt ASAP, try to ring fence leverage & risk on new projects to the project itself .

Otherwise you are going to require infinite inflation ability, and the ability of human labour to produce that effect is impossible - thus crashing the system.

there is no interest charged on my student loan, so any inflation above 0% effectively pays it off. Banks look at student loan debt only from an income sinking point of view, so effects servicability. I dont know what Im doing in 99.99% of investments, hence i stick to my own little patch where I do.

Simon. An investor owns capital and assets in an arrangement that obtains a benefit. You borrow and lend or buy to achieve a margin. You are a trader.
You might make a good margin and be successful but you are not an investor.

Traders buy and sell.. i.e TRADE. I buy and improve assets to generate income with P/E ratios better than Apple for example. Yup my growth prospects aren't as good as Apple, but by the same token my risk is a lot less as everyone needs shelter and no one can code a house on their computer, get a patent, and render my product/service obselete

I think Simon is the investor in this scenario. The investor takes advantage of the low cost of money to expand his asset base so that when the cost of money goes up he has more assets that he may not be able to afford if the cost of money was too high.

Not just 'expanding asset base', but putting the capital to work in a way that produces income well above the cost of that capital (and above conservative (so high) estimates of future costs of that capital in such cases as this where the rate is only fixed for 1 year)

Just as long as you realise that your income is unearned, or a free lunch. Except free lunches are never really free.

positive geared investor WB buy assets with cashflow, increase cashflow buy more assets wealth increases over time whether in boom or bust cycle
negative geared investor GH borrow money to buy asset with enough cashflow to cover interest strip out what you can sell while still achiving interest cover sell when finished to repay debt and start again
I know which I prefer

These interest rates are similar to what I was being offered when I was employed by a Japanese corporation in Japan back in 2007. I'm not sure why everyone thinks this a wonderful opportunity to make a motza by piling up on mortgage debt, particularly when it could be something that represents something more serious.

It's not everybody JC, Lots look at it as a fantastic chance to use the saving on interest to pay down debt. It's a mindset both sides.

Sure, but if these interest rates are a reflection of an environment where the opportunity to drive income is missing, then you have a double-edged sword. My time back in Japan made me acutely aware of that.

Deflation = doom :P

Sure, but if these interest rates are a reflection of an environment where the opportunity to drive income is missing, then you have a double-edged sword. My time back in Japan made me acutely aware of that.

What did the japanese do with such low rates of return in their own country? They SPENT it in higher yielding countries.

Did they? I think you'll find that they funded a carry trade. Japanese FDI has not been in Australia or NZ, It has been in Asia. They're long term thinkers and their industrial base is important to them.

That's what i was implying.. borrowing cheap Yen to buy higher yielding currencies.. not a lot different to what I'm doing. If there were apartments in toyko yielding net of expenses 6% plus do you think they would be chasing high yielding currencies or would have first poured Yen into real estate until prices were such that yields matched cost of capital, then forcing Yen overseas in search of a margin

Yields in Tokyo can be much higher than 6%, but the Anglo-Saxon property model is not common in Japan. Japanese investing in NZD have been smashed in the past 12 months. They got smashed in the GFC as well.

Because in reality they were playing musical chairs.

Should see someone offer a 3.99% fixed mortgage rate next week. People will be able to pay down debt rapidly in this new ultra low interest rate environment. All good.

That's still 20k for an average loan which are around 500k +