We start 2016 with record low fixed mortgage borrowing rates.
We still have SBS Bank offering a rate of 3.99%.
But the risks seem to the up-side with wholesale markets now expecting the US Fed to raise rates a number of times in 2016.
And these policy moves resonate in New Zealand's money markets.
Before the gritty detail of individual bank moves arrive to entice borrowers and claim market share, now is a time to set out the big picture; where we start and where we have come from.
Today, Westpac has kicked off the new year, tweaking a few of its mortgage rates.
It has raised its two year 'special' by +6 bps to 4.35% and its three year 'special' by +15 bps to 4.80%.
They follow BNZ who made their adjustments just prior to the New Year, raising their one year 'special' by +4 bps to 4.39% and their two year 'special' by +10 bps to 4.49%.
But before we get into that detail too much, here is where we start, for the record.
| 1 year Fixed | as at end of ... | ||
| 2013 | 2014 | 2015 | |
| ANZ | 5.49% | 5.59% | 4.35% |
| ASB | 5.49% | 5.59% | 4.39% |
| BNZ | 4.95% | 5.69% | 4.39% |
| Kiwibank | 5.45% | 5.69% | 4.49% |
| Westpac | 5.49% | 6.09% | 4.39% |
| Cooperative Bank | 5.19% | 5.69% | 4.39% |
| HSBC - Premier | 5.10% | 5.45% | 4.25% |
| SBS Bank | 5.20% | 5.59% | 3.99% |
| TSB Bank | 5.40% | 5.70% | 4.35% |
and ...
| 2 years Fixed | as at end of ... | ||
| 2013 | 2014 | 2015 | |
| ANZ | 6.29% | 5.75% | 4.49% |
| ASB | 6.29% | 5.75% | 4.49% |
| BNZ | 5.95% | 5.75% | 4.49% |
| Kiwibank | 5.95% | 5.75% | 4.49% |
| Westpac | 6.29% | 5.75% | 4.24% |
| Cooperative Bank | 5.85% | 5.75% | 4.49% |
| HSBC - Premier | 5.65% | 5.65% | 4.49% |
| SBS Bank | 5.45% | 5.49% | 4.49% |
| TSB Bank | 5.85% | 5.70% | 4.39% |
The one thing that stands out in these tables is how the second tier banks have made the first tier lenders take notice of them.
The differential between them is closer now than two years ago. Competition has forced the big banks to respond on price.
True, the big banks still use price-fighting 'specials-with-limitations-and-conditions' as their technique to respond; the smaller banks offer their rates as 'standard'.
But the trend is clear.
The residential mortgage business is a $213 bln market with the majors holding a remarkable 96% of it.
Despite that dominance, the smaller banks do influence prices and open the opportunity for borrowers to negotiate effectively.
And with such a major share the opportunity for the smaller banks is enormous. If they all doubled their mortgage books in 2016, the majors' share would only fall to 93% dominance !
The main bank mortgage business is a honey-pot for others qualified to compete.
And the overall mortgage book is not static. It grew by +$9 bln in the year ended 2014 and by another +$15 bln in the year ended 2015. That 2015 growth is actually more than twice the size of all four of the smaller banks whole mortgage books.
The main banks have size on their side but will always be restrained by the impact 'meeting the market' has on their own existing customers.
Still, they are clearly under pressure from the minnows; margins-to-swap are tight have declined in 2015 for every bank. (Having said that, bank profitability is not under any threat; they earned $7.1 bln last year and paid almost $2 bln in taxes, taking away $5.1 bln in tax-paid profits.)
If rates start to rise in 2016, customers may become more active in shopping their home loans around when they are up for rollover.
And the more they rise, the more borrowers will feel sticker-shock, the more they will shop around.
9 Comments
The two elephants in the room are:
Customer lethargy in looking for something else when the existing bank seems OK.
Stickiness because if you have multiple accounts with direct credits and debits set up, plus maybe insurance and KiwiSaver it seems just too hard to make the changes.
Personally, I was enrolled by parents with Auckland Savings Bank in February 1940 and still do most
business with ASB. However have also done things with ANZ, HSBC, Westpac plus overseas banks.
Would I change to TSB, Kiwi Bank?
Hard to say. It would have to be a revolution.
I recently moved $1.3m from Kiwibank to ANZ. I had approached SBS but they advised no contribution given for their 3.99% rate. Got 4.25% rate from ANZ for 2 years plus $12.5k contribution (effective rate of approx 3.75%). ANZ and BNZ were the two best bidders in the market.
Kiwibank said it would take them a month to get a proposal together... Idiots, scratched before the bidding even began (more money for the Aussies...).
The Aussie banks were more professional. I had to explain my borrowing to the Kiwibank mortgage "expert" several times and he still couldn't understand the structure. Also asked for a full application and a mountain of paperwork (and I had been with them for 3 years). Even then I had to keep chasing him up.
The big four's reps got it straight away and a quick bidding war and ANZ sealed the deal in a couple of days. The NZ banks were a pain to deal with and were clearly amateurs.
Here are some poor dears in USA. A mere bag a tell at 63%. We are so lucky to live in NZ.
http://www.marketwatch.com/story/most-americans-are-one-paycheck-away-f…
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