State-owned bank first of majors to drop a fixed home loan carded rate since early August as wholesale rates and risk margins continue to fall

Kiwibank today cut -10 bps from its two year 'special' fixed mortgage rate.

That positions it with the lowest two year rate among the majors.

However, it is matching an existing two year offer by TSB Bank, and is pipped by a 4.15% offer by SBS Bank.

And none of these are anywhere near HSBC's 3.79% two year fixed 'special'.

This new Kiwibank rate means it is offering the same price for both one and two year fixed terms.

These changes come after wholesale rates extend their long slide, something that has not been matched by fixed mortgage rate offers from nearly all banks.

Today, the two year swap rate opened at just 1.99%. This is close to the record low set just three weeks ago.

At the same time that wholesale rates have fallen, CDS spreads have been falling too. In fact, Australasian corporate investment grade credit spreads are now at their lowest level since late 2007 and their lowest level since the GFC.

Despite these wholesale changes, most banks don't seem motivated to follow them down. To their credit, they are also not cutting term deposit offers as aggressively as the wholesale cost falls either (but they have not held back in cutting savings account levels aggressively). To understand how they benefit from these selective rate adjustment changes, see our analysis here.

It is hard to know whether today's Kiwibank change will draw any response from its main rivals. ANZ sets the pricing benchmarks and they seem reluctant to respond with fixed rate cuts. Like most Aussie-owned banks, they are under pressure from the Australian regulator APRA to repatriate large amounts of capital to their parent. And that requires high profitability if their shareholders remain reluctant to bolster the equity in their NZ subsidiaries. In this circumstance, local customers are the only place they can extract the necessary funding. BNZ and Westpac are under similar pressures.

For smaller NZ-owned rivals, they are limited by the cost of their depositor funding, which hasn't fallen like the wholesale benchmarks.

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

below 80% LVR	6 mths	1 yr	18mth	2 yrs	3 yrs	5 yrs
	%	%	%	%	%	%
	4.99	4.25	4.89	4.35	4.99	5.30
	4.75	4.25	4.25	4.29	4.34	4.79
	4.99	4.29	4.99	4.29	4.49	5.15
	4.75	4.19		4.19	4.29	4.99
	5.15	4.25	4.95	4.29	4.49	4.89
	4.50	4.25	4.29	4.35	4.49	4.99
	4.85	4.19	4.19	3.79	4.49	4.99
	4.50	4.25	4.15	4.15	4.55	4.99
	4.75	4.25	4.35	4.19	4.59	4.99

In addition, BNZ has a fixed seven year rate of 5.55%, while TSB Bank offers a fixed ten year rate at 5.75%.