It has been a year since we last compared our mortgage interest rates with those in Australia.
And for the first time in our memory, pricing is lower for one key rate in New Zealand than the equivalent in Australia.
And this comes at a time when wholesale rates are trending higher.
Here is the current comparison:
| Residential mortgage interest rates | ||||||
| November 19, 2018 | Floating | 1 year | 2 years | 3 years | 4 years | 5 years |
| New Zealand | % | % | % | % | % | % |
| ANZ | 5.79 | 3.95 | 4.29 | 4.49 | 5.55 | 5.69 |
| ASB | 5.80 | 3.95 | 4.29 | 4.49 | 4.95 | 5.09 |
| BNZ | 5.90 | 4.15 | 3.99 | 4.49 | 5.19 | 5.39 |
| HSBC | 5.89 | 3.85 | 4.19 | 4.69 | 4.99 | 5.29 |
| Kiwibank | 5.80 | 4.05 | 4.29 | 4.49 | 4.99 | 5.09 |
| Westpac | 5.95 | 3.95 | 4.29 | 4.49 | 5.29 | 4.99 |
| NZ average | 5.86 | 3.98 | 4.22 | 4.52 | 5.16 | 5.26 |
| Swap rates | 2.00* | 2.05 | 2.18 | 2.32 | 2.45 | 2.57 |
| margin to swap | +3.86 | +1.93 | +2.04 | +2.20 | +2.71 | +2.69 |
| Australia | ||||||
| ANZ | 5.36 | 4.24 | 3.94 | 4.14 | 4.64 | 4.34 |
| CBA (ASB's parent) | 5.45 | 4.04 | 3.94 | 4.04 | 4.34 | 4.54 |
| NAB (BNZ's parent) | 5.24 | 3.99 | 3.89 | 4.09 | 4.24 | 4.34 |
| HSBC | 5.33 | 3.70 | 3.75 | 3.95 | 4.15 | 4.19 |
| Suncorp | 3.99 | 3.94 | 3.94 | 3.94 | 3.34 | |
| Westpac | 5.38 | 4.29 | 4.09 | 4.09 | 4.49 | 4.29 |
| AU average | 5.13 | 4.03 | 3.93 | 4.04 | 4.37 | 4.17 |
| Swap rates/BBSW | 1.94* | 1.98 | 2.10 | 2.19 | 2.45 | 2.54 |
| margin to swap | +3.19 | +2.05 | +21.83 | +1.85 | +1.92 | +1.63 |
| * 90 day bank bill rate | ||||||
| differential (NZ-AU) | +0.67 | -0.12 | +0.21 | +0.35 | +0.79 | +1.05 |
| differential in Nov-17 | +0.89 | +0.55 | +0.64 | +0.90 | +1.33 | +1.39 |
| differential in Jan-17 | +0.28 | +0.13 | +0.59 | +0.86 | +0.89 | +0.94 |
| differential in Aug-15 | +0.69 | +0.26 | +0.16 | +0.56 | +0.78 | +0.83 |
| differential in Feb-15 | +1.02 | +1.06 | +0.92 | +1.00 | +1.01 | +1.11 |
These are the carded rate differentials - negotiation can lower your actual rates, and your effective costs will be affected by incentives and fees. (Home loan fees are more pervasive in Australia, so much so that they require banks to declare "comparison rates". The above table does not account for those costs. Also, a wider range of carded discounts are available in Australia, but only if you commit to specific product bundles. We have ignored those sometimes costly bundles too.)
In the time since we last explored these comparatives, margins to swap have moved very much in favour of New Zealand borrowers. In fact, not only have New Zealand borrowers gained in relation to Australia, they have also gained as banks have lowered their margins-to-swap.
| November 19, 2018 | Floating | 1 year | 2 years | 3 years | 4 years | 5 years |
| % | % | % | % | % | % | |
| NZ margin to swap | +3.86 | +1.93 | +2.04 | +2.20 | +2.71 | +2.69 |
| AU margin to swap | +3.19 | +2.05 | +1.83 | +1.85 | +1.92 | +1.63 |
| and this compares with the levels in November 2017 as follows ... | ||||||
| NZ margin to swap | +3.93 | +2.51 | +2.42 | +2.59 | +3.14 | +3.08 |
| AU margin to swap | +3.28 | +2.21 | +2.08 | +2.03 | +2.05 | +1.98 |
Somewhat surprisingly, the popular one year term is priced more competitively in New Zealand than Australia. This is the first time we have noticed this phenomena of pricing being better on this side of the ditch for any duration. Two year rates have tightened as well, all the more surprising because wholesale rates have ben rising in the past month.
New Zealand fixed two and three year rates have also fallen, dipping to the lowest premium to Australia in a long time.
We used to pay a +50 bps premium as a 'New Zealand-small-market' penalty. That has now reduced to under +40 bps for 3 years, +20 bps for two years, and is a discount for one year. It is the best situation for New Zealand borrowers ever. And the fat margins we revealed a year ago seem to have been reduced under the pressure of intense and genuine competition.
You can find our previous November 2017 review here.
In New Zealand there are about nine or ten active banks seeking mortgage business, but 96% of all business is being done by just five of them. And one of them, Kiwibank, struggles to post competitive profit results. The market share of the four Aussie-owned banks makes them unassailable.
There are far more options in Australia with well over 25 institutions with a home loan book over AU$1 bln, and the four majors with 'only' an 83% market share. But the sheer scale means that the 17% not with the four pillar banks is a market of AU$275 bln, itself larger than the whole New Zealand home loan market.
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