A second major bank slices 20 bps off a key mortgage rate as wholesale money costs fall to near record lows. But it ends its 3 year 'special'

A second major bank slices 20 bps off a key mortgage rate as wholesale money costs fall to near record lows. But it ends its 3 year 'special'

Westpac has today joined two other banks offering a 4.19% two year 'special' mortgage rate.

That involves a -20 bps cut in their previous 'special' for that term.

At the same time they have ended their 4.80% three year 'special', reverting to the standard 4.99% rate.

The new Westpac two year 'special' lines them up with TSB Bank who adopted the rate first, and ASB, who dropped to the same rate last week.

For the 2 year term, these three banks now have a +16 bps advantage over ANZ at carded rates, who have the largest mortgage book in New Zealand. 4.35% is ANZ's lowest carded rate of any term they offer.

The lowest carded rate offered by any bank for any term is by SBS Bank who offer 4.10% for a fixed one year term. HSBC have announced the end of their 3.95% 18 month rate and borrowers will need to make their deal with them by May 20, and draw down by the end of the month if they wish to capture that unique rate.

Behind the scenes, wholesale swap rates remain near record lows. Most of the declines in this wholesale funding has not yet been passed on in mortgage rate offers (or taken from term deposit offers) - yet.

Banks are somewhat constrained by their core funding ratio obligations. They also claim that swap spreads 'are high', adding to their wholesale costs. 

Here is where fixed rates stand after today's Westpac 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 4.19 4.99 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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Hmm.. Is it worth a Break?

No way! Rates are going one way and its not north. This will look dear in 18 months.

Do you have a true understanding of how bank funding and margins work?

To offer below a 3% rate (lets say 3% for example), working backwards:

3% rate
- 1.3% (approx. margin on a fixed term)
1.7% funding

That 1.7% is both the overseas wholesale rate + NZ's credit margin. That is very unlikely given the direction the US is heading, and the direction our dairy industry is going.

If you can put some evidence behind your theory about why NZ's rates will go to even 3%, I'd be happy to change my opinion. (and by evidence I don't mean "look at the UK's mortgage rates", that is comparing apples and oranges).

book mark my post for 18 months time. My evidence? Look around the world and tell me what you see. I see sub 1% everywhere with absolutely no outlook of raises for a decade or more.

EDIT - and it begins.... http://www.interest.co.nz/news/81562/kiwibank-offers-its-lowest-rate-eve...

Can you show me a residential mortgage sub 1% please? ideally a country with similar risks to NZ.

And "looking around" isn't evidence.

The sub 1 rates you are suggesting, at current bank margins, suggest banks will get negative interest rates for borrowing.

Germany has mortgage rates of 1.5% for some customers.

I would like to know why NZ is considered "riskier" than other developed countries.