Gareth Vaughan argues it's time for banks to cut unjustifiably high floating mortgage rates

When you think of the original intent of an offered floating or variable rate - the deal is/was: the borrower takes more risk, but has more chance of benefitting from a lower rate which reflects the movement of the wholesale/retail market. 

That is not happening anymore: the floating rates are quite 'fixed' or frozen at the moment as the banks are trying to get borrowers locked in at tempting rates on fixed then get them off the open market where they may switch banks. 

6.6% is a very high rate -  you can get a cheaper rate on a credit card. 

The closest thing to a lower float is the 6 month rate, then borrowers have a chance to renegotiate every 6 months while avoiding the high price of floating. 

But if you are in Auckland and one of many property speculators, it will be more beneficial to be on floating rate

YES , its ridiculous that floating rates are between 6-7% and fixed rates as low as 4,99%

To be fair , and somewhat simplistic , floating rate money is funded onshore by Banks and a factor of the OCR , while fixed mortgage money is term deposits from Asia invested  in local Banks  .

That said , money is money,  like any commodity , and the price differentials are hard to justify  

Of course it's a rort.   Banks have no great risk because they can change the price if they want.  If their funding cost went up, it only takes a month or two to pass that charge onto the borrower.  No downside for banks and can therefore be much cheaper.

Well New Zealand, just another way to send our standard of living offshore.

If the Government had the will to control house price inflation in Auckland, then our interest rates could be much lower to the benefit of everyone.

Instead they are sitting on their backsides and leaving all the hard decisions to the Reserve Bank.

National do not want to offend their backers, both in NZ and overseas by putting in place measures that will stop this house buying frenzy by investors.

Banks are not the problem, this Government is the problem with their complete inaction on the demand side of property investment.

why would the banks reduce this very high floating rate?  If they did, borrowers will not have the attraction to fix.  Fixing helps banks to lock these fixers up and have them as their base clients while they look for more suckers in the markets.

The reason for higher floating rates is very simple.

With a fixed rate the banks only complete on the new business volume which is typcially about 5% of their book in any given month.  As such changes to fixed margins flow through to their P&L slowly.  Hence competition almost exclusively occurs on fixed rates where the immediate pain of margin contraction is far less.

Conversely when banks change their floating rates the whole book reprices.  If floating rates make up around 30% of the market then that is $60 billion.  A 0.25% move in the advertised rate would cost banks collectively about $150m in revenue.  Big numbers.  The marginal volume benefit of competing on a floating rate would never justify the cost so it simply doesn't happen.

The next point is that Floating is where the price insensitive money or lazy money tends to sit.  When fixed rates mature the client automatically goes on to the carded floating rate and sometimes can take months before they realise.  

This gives banks extra margin but they also risk churn so its a delicate balance between extra margin and losing business.

Spoken like a borrower. Borrowers and banks will eventually pay for the theft that is currently being suffered by depositors. Plunging valuations and shocking rate increases will be hard to fathom for a generation that grew up on the over financialisation of capitalism.