While most of the main banks have settled on 3.49% as their new two year fixed mortgage rate, the question is, will they jump lower again?

While most of the main banks have settled on 3.49% as their new two year fixed mortgage rate, the question is, will they jump lower again?

Finally, the last of the major home loan lenders has adopted what their rivals did last week - a 3.49% two year mortgage 'special'. That is a -5 bps reduction.

At the same time, ANZ cut most term deposit rates from 5 months to 5 years, and mostly by -10 bps.

It has been a week since BNZ clipped its two year fixed mortgage rate 'special' down to 3.49% and most of their main rivals have followed them down.

BNZ did this without moving their Standard two year rate, which is a pretty unique event - usually these standard rates dip in lockstep.

First to match them was Westpac, also adopting the 3.49% two year fixed rate without moving their standard rate.

TSB then moved their fixed rates down, all rates six months to two years, both 'specials' and 'standards' but their two year was only taken down to 3.59%.

Then ASB moved down, pricing their carded two year 'special' at 3.49% and cutting their two year 'standard' to 3.99' which now is the lowest two year 'standard' rate by any main bank.

And now Kiwibank says it will adopt 3.49% as their two year 'special' on Monday, September 30. Their two year 'standard' is being reduced too, but only to 4.24%.

Along the way, SBS also reduced rates for three fixed terms including two years and their 'special' is set at 3.59%.

This means that ANZ now has the highest two year 'special' of the five main banks at 3.54% so you might expect them to adjust down to the new benchmarks fairly soon.

So far, none of the main banks have shown any inclination to tread where some of the Chinese banks have gone, with the Bank of China offering 3.15% for two years fixed, China Construction Bank offering 3.19% and HSBC Premier offering 3.35%.

Before the August 7 RBNZ OCR rate cut, this two year rate was sitting at 3.79%. Since that official -50 bps cut, the two year fixed mortgage rate has been reduced by -30 bps and term deposit savers have been spared about 25 bps. (That is, the one year TD rate has fallen from 3.05% to about 2.80% and therefore only suffering half the OCR reduction.)

Wholesale swap rates have started dipping again after a brief firming flurry. But they are not yet back down to the levels we saw in early September.

Term deposit rates have inched lower at a few banks, but not at any of the majors in the past week. We understand one of them may cut some rates early next week however. These deposit rates have an out-sized bearing on how low the main banks can pitch their home loan rates, more so than wholesale rates.

Here is the full snapshot of the advertised fixed-term rates on offer from the key retail banks.

Fixed, below 80% LVR 6 mths  1 yr  18 mth  2 yrs   3 yrs  4 yrs  5 yrs 
as at September 28, 2019 % % % % % % %
ANZ 4.29 3.65 3.99 3.49 3.99 4.85 4.95
ASB 4.29 3.65 3.75 3.49 3.89 4.19 4.29
4.79 3.65 4.55 3.49 3.99 4.35 4.45
Kiwibank 4.79 3.55   3.49 3.99 3.99 3.99
Westpac 4.99 3.65 4.79 3.49 3.99 4.35 4.45
Bank of China 3.99 3.15 3.70 3.15 3.79 4.35 4.45
Co-operative Bank 3.69 3.69 3.75 3.75 3.99 4.19 4.29
China Construction Bank 4.70 3.19   3.19 3.19 4.95 4.95
ICBC 5.15 3.79 3.79 3.75 3.99 4.29 4.39
HSBC 4.65 3.35 3.35 3.35 3.35 3.35 3.35
HSBC 4.29 3.65 3.69 3.59 3.99 4.49 4.49
  4.35 3.69 3.69 3.59 4.05 4.45 4.55

In addition to the above table, BNZ has a unique fixed seven year rate of 5.70%.

All carded, or advertised, term deposit rates for all financial institutions for terms of less than one year are here, and for terms of one-to-five years are here. And term PIE rates are here.

Fixed mortgage rates

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Is 3.49% the bottom? Probably not.
But is it worth waiting?
How much lower are they going to go in the near future? RBNZ hasn't too much further to cut OCR without approaching negative territory (a serious mindset involved with significant implications) and banks are still going to have to attract money; so possibly 0.5% or an outsider 1.00%. How much difference is that going to make to repayments over two years?
What is the outlook for two years time when one will be renewing - current RBNZ comment is that interest rates are going to be lower for longer so reasonably likely to still be low in two years.
Personally, if I was a borrower and renewing I would be seriously tempted for two years.
Worth breaking for these rates? Depends on one's current term and bank break fees.

As an aside re RBNZ - if things aren't looking too hot in terms of the economy and housing was stagnant (nationally, for economic stability reasons, they would be wanting to see some net growth around 1 or 2 %), I would see RBNZ probably visiting LVRs to stimulate housing rather than a further OCR cut.

"Is 3.49% the bottom?"
It's a tingling in the legs thing, isn't it?! That feeling that "this is it". (NB: I reckon there are a few bank treasurers nervously thinking the same thing! "We've overshot. Quick. Get a 4 back as the Big Figure")
Given the current state of affairs, you could be right, but it's a matter of "where will the next state of affairs leads us?"
No one thought Germany would have negative interest rates - no one, not even the 'gloomiest' of guessers, and yet here we are....
3.49% is as good a rate as any to lock in at, but don't be surprised if we look back at the end of that time and think "Golly! Who would have thought...."

Just in Bonn for a few days. Mortgage rate .9%

Just in Bonn for a few days. Mortgage rate .9%

Double post... A Bonn-Bonn, of sorts.

Yeah sorry about that. Good comment.

Worth waiting. No, I just take the best rates at the time rather than trying to time the market. Splitting a mortgage with different fixed terms is still beneficial. Although I'd have a hard time recommending a 3 year fixed term or longer right now.

60% of the last rate cut passed on "so far". Interesting to see where interest rates are come the OCR review in November.

Where are you getting that from?

Remember wholesale fixed rates run ahead of OCR, and bake in expectation. So if you go to say mid May after the first cut and take it through to now, it seems like 2 year has dropped from 3.99 to 3.49, essentially, the full 50bps.

The articles states "Before the August 7 RBNZ OCR rate cut, this two year rate was sitting at 3.79%."

Did you even read it?

Yes, and MisterB's point is that looking at the rate immediately prior to the rate cut is not appropriate for fixed rates. That only works for floating.

Correct, because immediately prior to the OCR drop, 25bps of drop was already expected and priced in .. so it's purely the additional 25 that took markets by surprise and that has been passed on, for home lending at least. It has not been passed on so much for deposits, which have only really dropped 15 since then

The thing about dead-cat-bounce

"3.49% and their new two year fixed mortgage rate, the question is, will they jump lower again?" Answer; Yes, they will go lower. I still think we're likely to see rates drop to 2.99% before the end of this year.

To put it simply there's not much Foreign Buyer pressure to maintain high house prices. And since the banks are extending their fix rate time periods that's a strong indicator they they'll go lower.

Hi CJ1099
While not agreeing with your 2.99% figure by the end of the year, it is really pleasing to see you substantiate your view.
Sadly, too many posts on this site are made without substantiating the reason for them. A substantiated view is far more valuable as the reader is able to assess whether or not there is a reasonable basis for that view.

There seems to be two market offerings on fixed rate deals - one by banks mainly funded by deposits and the other mainly funded through fixed income.

If the later group decide to cut their margins they can already do 2.99% as two and three year NZ govt are below 1% and with their 40bp credit premium there is still margin.

My view is this time next year we will see lower rates by a margin from where we are now as we see OCR and swaps drop with the slowing economy. How much lower is pure guesswork but 50bps from where we are now seems plausible.

What is the determining factor in the statutory requirement to fund using deposits? It seems a significant handicap at the moment. Imagine if one of the ~3.15 offerings was from a bank that actually seemed like a plausible option...

There isn't any. The only requirements are on tier 1 capital so far as I'm aware so bond issuance is A ok. Glad to be corrected as the last time I looked at bank capital computation was a good decade ago !

Someone claimed, in a previous comment, that the big banks are required to fund using deposits and so their ability to raise cheap bonds is less relevant. I was hoping someone could explain that, if true...

@ Printer8: Shame all you could do is waffle and not even provide your point of view as to why you think mortgage rates couldn't drop to 2.99%?
Are you even aware that the current lowest mortgage rate on offer in NZ is 3.19% with the China Construction Bank. So are you predicting that rates are about to increase and if so why? I can give you plenty of further reason why they're going to sink lower.

- For the last 4 years, when bank economists, Roger Kerr and all said inflation is around the corner and interest rates were about to rise, I stated against the trend that rates will go down (an obvious view today). I backed my view by fixing my mortgages for 1 year since 2015 and reaped the benefit of lower rates
- I called an OCR drop of 0.5% when no one saw it coming
- Shortly after the OCR cut of 0.5% when many were lamenting that the banks were not passing on much of the cut I forecast rates of 3.49% for 2 years by the end of September

Wow. Hail the sooth.

I guess even a chimp with a dart board and enough time can hit a bullseye once in a while.

Good to see you're not the envious, jealous, petty type. Well done for being open minded and honest enough for giving credit where credit is due

I don't always agree with what you have to say, but praise where due you called this one. I probably haven't been on this site for as long as you have so not sure what your long term track record is like, but kudos anyway.


Thanks NZ Dan, it's actually much better for ourselves to acknowledge when someone is right and maybe learn something rather than fight it

Glitzy, since it's so easy and even "a chimp can do" it as you say, why don't you make 3 economic predictions that go against common belief, one short term (days) one mid term (weeks or a few months) and one long term (a few years). Make sure you are specific with numbers and dates.
We'll see if you can hit the trifecta

Can you lend me your crystal ball Dryvil ?

Sarcasm is a good way to avoid discussing an issue. It does very little however for self improvement.

I guess that's a no... Does the ball go cloudy before these extraordinary predictions are revealed and do you have to sacrifice anything before a session ?

I did a quick google of areas in Auckland with missing cats but I breathed a sigh of relief when it came up empty...

You looked in the wrong place, I'm in Calpe, Spain in one of my holiday places

I'd keep your location top secret. It's even more mysterious that way.

Let's not, I'm in Alicante airport waiting to board our flight to Ibiza to join friends on their yacht. Big night ahead for the Amnesia Elroy closing party tonight.

More locally (Auckland) Fiesta del Sol on 23rd November should be a very good one! Get your tickets if you like to have fun

If negative rates are going to come, within a year, it is not good to refix now, right ?
The Banks may then take the rates down to even 0.00 % and consider repayment of principal only as a good return...
Crazy as...