A major bank slices 20 bps off a key mortgage rate as wholesale money costs fall to near record lows. But it also raises rates for two other terms

A major bank slices 20 bps off a key mortgage rate as wholesale money costs fall to near record lows. But it also raises rates for two other terms

ASB has today changed three fixed mortgage rates, some up, some down.

The one it wants you to notice is its new 2 year 'special' fixed home loan offer.

It is now 4.19%, down -20 bps from 4.39%.

That makes it the equal lowest two year fixed rate in the market, matching the same rate offered by TSB Bank.

Of more importance for ASB, it trumps all its main rivals for that term, and now lower than Kiwibank's 4.25% offer.

But at the same time, it has pulled back from its even lower one year and 18 month 4.15% 'special' rates.

ASB's new rates for those two terms is 4.25%, a rise on +10 bps. Despite the increase, this rate is still very competitive, especially compared with their main rivals.

SBS Bank has the lowest one year fixed rate at 4.10%. HSBC has the lowest 18 month fixed rate at 3.95% (although it has advised that is rate will end on May 20).

Low rates are possible because wholesale swap rates are near record lows, and while banks generally have not passed on these benefits to borrowers, the competitive impulse in this market has kept rates down generally.

Fixed mortgage rate levels step up a lot at the the three year level and longer, although based on the wholesale rate levels this seems hard to justify

ASB's new rates also apply to BankDirect, Sovereign and most rates offered through NZ Home Loans. The change is effective today.

ASB's 'specials' require a minimum of 20% equity in the security property provided to ASB. They also are not available on loans for business purposes, bridging, or HomePlus. But ASB don't seem to require you to have your wages or salary credited to an ASB bank account, a condition many other banks insist on.

Here is where fixed rates stand after the ASB changes:

below 80% LVR  1 yr  18mth  2 yrs   3 yrs  4 yrs  5 yrs 
  % % % % % %
4.25 4.89 4.35 4.99 5.20 5.30
ASB 4.25 4.25 4.19 4.65 5.00 5.15
4.25 4.99 4.39 4.64 4.99 5.15
Kiwibank 4.29   4.25 4.75 4.90 4.99
Westpac 4.25 4.95 4.39 4.80 5.09 5.19
             
4.25 4.35 4.35 4.65 4.89 4.99
HSBC 4.25 3.95 4.39 4.59 4.79 4.99
HSBC 4.10 4.35 4.29 4.65   4.99
4.35 4.35 4.19 4.79 5.35 5.35

In addition, BNZ has a fixed seven year rate of 5.55%, while TSB Bank offers a fixed ten year rate at 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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These rates are so low , its going to be interesting to see what depositors are going to get for their savings over the next year

and it's going to be interesting to see where is the border between benefit & too much risk.

Right now banks in NZ still give 2.75% or 3.00% per year on savings. Considering the low inflation it's not too bad.

But since deposits are not guaranteed in NZ I, personally, would move all my savings to EU or Australia if the interests rates fall below 2% as it wouldn't be worth the risk and given there are not very many safe options to invest nowadays.

Yes, it's looking dire, particularly considering bank deposits are now no more than funding for mortgage debt yet the owner of that deposit is last in line to get that money returned. Got a surly ASB CSR on the phone the other day when I asked why the bank couldn't notify depositors of impending changes to rates. Depositors are no more than pond scum now.

With the raising of rates on 1 year and 18 month mortgages are we likely to see a corresponding rise in the 1 year and 18 month term deposit rates?
Me think not.

The ASB 12m TD is already 3.25% only 100bps difference to the lending rate. Given cost to write new lending that's not a massive margin. Average weighted rate for 12m amongst big 5 = 3.25% v 4.26% for 1 year 'special' lending, so seems consistent.

Borrowers locked in on fixed rates at 4.69% or above are now regretting fixing for 2 years or longer.
.005 difference means paying an extra $100 plus a month on your 300k mortgage.
As rates slip to Zero, and 'floating' rates stay overpriced, then 6 - 12 months remains the only reasonable option for borrowers.

In their defense, it's very hard for borrowers to understand what's going on. Most people don't have the time or gumption to time interest rates. And in reality, what does it actually mean to them? What's an extra $60 a month when you're up to the gills?

Borrowers are at an 'information asymmetry' disadvantage, while being cleverly led away from floating rates (relatively high), then tempted by 2 year rates - which gives banks 'lock-in'.

A hundred bucks a month is pocket fluff. The advantage of fixing is that it buys you certainty, peace of mind.

The fixed price premium giving "peace of mind" is an 'old normal' paradigm.
There is no fear of rising interest rates any more bar a global emergency/liquidity crisis.
Therefore you will get a better 'peace of mind' by staying on floating if that's what you want - but you will pay a premium there as well!
$100 extra cost per month may not be "fluff" for wage earners - it amounts to $1600+ of gross earnings per year.

exactly rates aren't going anywhere for a decade

Hence the illogical nature of what's going on. Relative to house prices, $1600 is a drop in the ocean.

Some people spend $1600 on a new phone every year. A new kitchen costs 30K or a new bathroom. One week in Fiji 10K. A thousand dollars is not what it was.

Those that lock themselves in for 2 years at 4.19% will regret it this year. I'm sure a lot of people got 12 months at 4.15% or similar rates before this change. The banks are betting on a short term drop in the OCR so they want more 2+ year fixed terms to be locked in.

I took out a new mortgage a year ago for 5.19% and locked it in for two years. At the time I did it I had another mortgage for over 6% that still had eight months until renewal. The bank kindly offered to change this mortgage to 5.19% and lock it in for two years. At the time I thought this was great as they offered to break my existing fixed mortgage and renew for over 1% less without me asking and no fees. Why, oh why did I not think it was probably to their advantage and not mine to do this?
Be careful of offers that seem too good!

That said when you fix for two years or so you usually calculate the payments and do it because it all works out. I wouldn't spend too much time regretting these decisions.

I've still got one mortgage at a very high rate that I fixed for 3 years. Fortunately that has less than a year left. The way I set up my mortgage 60% of my decisions were correct. Even 5.19% isn't that bad given the weighted average for NZ is 5.4%.

I still remember articles recommending 5 or 10 year mortgages for large percentages in the 5% range.

Hi Dictator,

have you considered changing banks, paying the breakage fee. This is what we did about a year ago. We broke morgage / got the new banks incentive (1% of loan) which covered breakage fee and got a new lower rate in the process.

It's not high on my list of things to do. The anticipated breakage fee would just mean I'm paying a similar amount. I wouldn't change my monthly payment either. It's more important that I focus my money on investing where I'll get a return on the money rather than spend it on the breakage fee. Breaking doesn't stack up for me at this time.

Worth considering in many cases.

Welcome to the new normal. 4.19 will look expensive soon.

For selfish and logical reasons I hope you are right ObesseBallerina.
However, given Mr. Wheeler's stance, approach and inactions towards OCR cuts (too late and too little), I wouldn't be surprised if we hover slightly lower than where we are at the moment for sometime to come.
He and his team have access to a lot more data and analysis than all of us put together. So, lets also hope that he is making the best 'tradeoff decisions' for collective NZ.

3.5% fixed rates will soon be the new normal.
Still expensive by developed world standards.

You can thank Wheeler for that.