Price divergence wide in banks' carded home loan rates

Wide ranging carded, or advertised, home loan rates on offer from banks suggest more cuts are coming

19th Jan 16, 11:35am by Gareth Vaughan

By Gareth Vaughan & David Chaston

This week's fixed-term mortgage rate cuts by BNZ and SBS Bank creates a very diverse picture across the range of carded, or advertised, rates on offer from all the banks.

As our table below demonstrates, with rates in green the low for their term rising up to those in red being the highest on offer for their term, price divergence among banks is currently running high.

Of course, banks will give some customers who haggle with them rates below their carded rate. However, the divergence currently on offer through carded rates does highlight uncertainty in global markets.

Just prior to Christmas ASB increased long-term fixed mortgage rates after wholesale swap rates rose in response to expectations the US Federal Reserve's first interest rate hike in a decade wasn't going to be its last. However, with renewed turbulence in Chinese share markets, a tumbling oil price and generally negative news in global financial markets over the holiday season, swap rates have fallen with the one-year swap rate opening Tuesday at a three year low.

Against this backdrop this week SBS cut its three-year 'special' home loan rate by 14 basis points to 4.65%. BNZ quickly followed by launching a 4.49% three-year 'special', which is 76 basis points below its standard three-year rate, and cut its two-year 'special' by 10 basis points to 4.39%.

In contrast Westpac increased its two-year 'special' by four basis points to 4.43%.

The current situation means that although BNZ can boast of the lowest two and three-year carded rates, its five-year rate is well out of the money. And for the three-year term ANZ, the country's biggest home lender, currently has a carded rate 61 basis points above BNZ's 4.49%. We can certainly expect to see further changes to carded home loan rates over comes days and weeks.

The Reserve Bank's next Official Cash Rate review is set for Thursday, January 28. Financial markets currently don't expect any change from 2.50%, but the risk landscape is changing quickly. Wholesale swap markets are changing, especially for terms ranging from two to five years as risk aversion sinks in.

Market turmoil and uncertainty in China will be influential towards interest rate pricing if it continues. This will mainly be felt through the risk premiums that wholesale borrowers (such as banks) must pay to access funds. These risk premiums have been rising fast in the past few days, even as wholesale rates have been softening.

Note, some of the rates below are specials and some are not meaning some have strings attached and some don't. More detail is available here.

Mortgage rates now compare across all banks as follows:

below 80% LVR	1 yr	18mth	2 yrs	3 yrs	4 yrs	5 yrs
	%	%	%	%	%	%
	+0.10	+0.46	+0.10	+0.61	+0.26	+0.36
	+0.14	4.49	+0.10	+0.26	+0.16	+0.26
	+0.14	+0.60	4.39	4.49	+0.41	+0.51
	+0.24		+0.10	+0.36	+0.26	+0.36
	+0.14	+0.46	+0.04	+0.31	+0.26	+0.36

	+0.14	4.49	+0.10	+0.26	4.99	+0.16
	4.25		+0.10	+0.50	4.99	4.99
	+0.10	+0.20	+0.10	+0.16		+0.30
	+0.10	+0.20	4.39	+0.30	+0.36	+0.36

with the actual rates as ...

below 80% LVR	1 yr	18mth	2 yrs	3 yrs	4 yrs	5 yrs
	%	%	%	%	%	%
	4.35	4.95	4.49	5.10	5.25	5.35
	4.39	4.49	4.49	4.75	5.15	5.25
	4.39	5.09	4.39	4.49	5.40	5.50
	4.49		4.49	4.85	5.25	5.35
	4.39	4.95	4.43	4.80	5.25	5.35

	4.39	4.49	4.49	4.75	4.99	5.15
	4.25		4.49	4.99	4.99	4.99
	4.35	4.69	4.49	4.65		5.29
	4.35	4.69	4.39	4.79	5.35	5.35

In addition, BNZ has a fixed seven year rate of 5.90%, while TSB Bank offers a fixed ten year rate also at 5.75%.

Fixed mortgage rates

Select chart tabs

Source: interest.co.nz

Source:

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8 Comments

by Boatman | 19th Jan 16, 11:54am 1453157689

........." suggest more cuts are coming".............. of course more cuts are coming , the world is awash with cash and with yields at ZERO there is no place to invest , and so its coming here .

The consequences of QE have not been felt yet , AND there is now a real risk of deflation

by notaneconomist | 19th Jan 16, 12:24pm 1453159440

And the Reverse Bank of NZ will likely have Fed Reverse Company....

by MortgageBelt | 19th Jan 16, 12:05pm 1453158337

Perhaps if floating rates actually 'floated' then borrowers would not need to lobby their banks for better short term fixed rates. What percentage of borrowers don't bother to ask for a better rate than the carded rate?
Is the large premium on floating actually a risk weighting? The risk of the borrower changing banks. Rather entirely than a funding cost.

by economist | 19th Jan 16, 1:10pm 1453162219

I just refixed for 1 year at 4.39% (as I doubt the floating rate will drop below this). As the LVR was under 25% the bank (Sovereign) and mortgage broker said it was too small an amount to offer below their carded rates, oh well, I suppose it doesn't make much difference anyway, but its the first time Ive had to pay carded rates that I can recall...

by bigblue | 19th Jan 16, 1:15pm 1453162524

Most banks will offer a 1% discount off their carded floating rate - all you have to do is ask or get a broker on your side. many people are securing one or two year fixed mortgages at 4.1% to 4.2%. Don't be suckered by carded rates - these banks will do deals.
Swap rates plummet - looks like they will soon be at the lowest level seen since 2009 - likely they will plunge to a new record low. The banks should soon be offering 1 and 2 year mortgages at around 3.5% and 3 year mortgages at 3.75%. Current mortgage rates in the mid 4% area are far too high - negotiate hard with your bank!

by economist | 19th Jan 16, 1:24pm 1453163061

I was told as my mortgage was under 150k I didnt have much to negotiate with.
How unfortunate am I not to have a large mortgage 200k or 300k+ ?
It seems I would get much better rates if I took out more debt....

by steven | 19th Jan 16, 1:34pm 1453163693

but 1 year isnt exactly long. I think its a good ploy if that makes a difference overall, ie your base rate is lower than floating then even if the floating does drop you dont lose much but if it stays flat you gain. Looking at how 2016 is unfolding 1 year seems very sensible for peace of mind.

Personally ignoring huge external events I think the RB should drop 0.5% by year end as the CPI data and employment continues to get worse, but tehy probably will not. BTW get a huge external event and then what happens? would that drop the OCR? 100basis points? but raise wholesale rates as investors run from NZ?

Yes no one cares with a small residual mortgage, they move on to trying to sell you insurances, pensions and other quack products etc.

by economist | 19th Jan 16, 3:39pm 1453171171

I think if we get a huge external event steven (and the chances of that seem to increase with every week that passes so far in 2016), it will make little difference what the RB sets the OCR at. I think the RB should drop 25bps just to entrench in a lower dollar, whether it results in cheaper mortgages is another question...

At just under 135k even if interest rates triple I'd still be paying less interest than last years market rent.... equivalent, so at this stage I'm just going with whatever rate is cheaper as there is not much affordability risk to consider what interest rates do. And given a significant external event looks like a reasonable possibility within the next year or two, I'd rather keep debt low..., except for that new SUV that Im enjoying of course...