Kiwibank raises two fixed rates, one of them by ending a low-rate 'special'. It is a move that has a knock-on impact. We review why rates seem to be turning higher at this time

Kiwibank raises two fixed rates, one of them by ending a low-rate 'special'. It is a move that has a knock-on impact. We review why rates seem to be turning higher at this time

Kiwibank is ending its one year 3.39% fixed home loan special.

And it is raising its 5 year carded fixed rate.

The one year change actually has a downstream impact. ANZ had advised its front-line staff that it would match that rate, and our tables reflected that official position. But now Kiwibank has moved away from that rate, the ANZ rate now reverts to its carded 3.55% rate.

Practically, that means that ANZ's 3.39% rate moves from a 1 year offer to an 18 month offer.

Kiwibank's one year carded rate rises +6 bps to 3.45%.

And its five year rate rises +10 bps to 4.09%.

Banks are sensitive about the timing of these rises. They are saying they have nothing to do with the Thursday RBNZ Capital Review.

And to be fair, that is probably directly true.

What is motivating these pricing changes - and more banks are likely to follow - is the move up in wholesale swap rates. These are now back to levels we last saw before the RBNZ -50 bps cut on August 7, 2019.

Back in early August, the one year swap rate was 1.25% and the Kiwibank one year home loan rate was 3.79%. The ANZ home loan one year rate was 3.85%. Today, these two rates are 3.45% and 3.55% respectively when the one year swap rate is 1.22%.

Why are wholesale rates rising? A core reason is that the RBNZ has clearly signaled that are on hold with their OCR for the foreseeable future. And international markets are where the interest rate action is and these are moving higher now. There are many reasons, but the result is that the benchmark UST 2 year rate is now +6 bps higher since the beginning of November and the UST 5 year benchmark is +9 bps higher. In the end, New Zealand rates can never escape the influence of the 500lb gorilla that is the US bond market.

Local influences add to that. The recent signaling by the Government it will be spending big on stimulus projects, and in fact announcing the first of them, has moved markets. More is expected in the HYEFU and wholesale pricing for that is being added now. We also see that in the behaviour of tenderers for Government bonds who have recently upped they expectations by an average +26 bps over the past few months.

Obviously, there is more to mortgage rate pricing than wholesale money costs. Retail money costs (as in term deposit rates) are a important factor too. But for banks to have credibility about claiming these retail rate offers are part of their pricing decisions, we need to see equivalent rises in their offers as well. We will report them when they happen, but so far, apart from minor 'specials' (and minor is a change like +5 bps), they are noticeable by their absence. 

There is another point worth making on the mortgage front. And that is, after the changes detailed below, there are material pricing differences opening up between the major banks. Among all banks, the market-leading carded rates haven't changed, but the variation between rivals has.

Because the recent shifts have been rises, many borrowers who expected that very low rates will be around for a while yet may like to assess their judgment. If you don't have a roll-over decision quite yet, you may want to figure out the break fee cost if you want to lock in a current low rate. Using our break-fee calculator can help you with that decision.

The room to move and react to rivals is perceived by banks as limited. Net interest margins are low by historic standards. The RBNZ has been keeping Net Interest Margin data since 1991 and this fell to 1.97% as at September, its lowest ever in this data. Margin protection will be a strong internal motivator, which is probably why we only see reactive shifts in pricing and only when they are necessary. Competitive impulses are being restrained. The move by the majors to raise rates should also be seen in this light.

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 December 6, 2019 % % % % % % %
ANZ 3.65 3.55 3.39 3.55 3.99 4.75 4.85
ASB 3.89 3.39 3.75 3.55 3.89 4.19 4.29
4.79 3.49 3.39 3.45 3.99 3.99 3.99
Kiwibank 4.29 3.45   3.55 3.89 3.99 4.09
Westpac 4.79 3.39 4.25 3.55 3.99 4.35 4.45
Bank of China 3.99 3.15 3.39 3.39 3.79 3.99 3.99
Co-operative Bank 3.49 3.49 3.59 3.59 3.89 3.99 4.09
China Construction Bank 4.70 3.15   3.15 3.19 3.30 3.45
ICBC 4.29 3.18 3.18 3.18 3.20 3.99 3.99
HSBC 4.19 3.54 3.54 3.54 3.69 3.79 3.89
HSBC 4.29 3.39 3.69 3.45 3.89 4.49 4.49
  4.35 3.55 3.55 3.45 3.89 4.45 4.55
Price Match Promise   3.65 3.39 3.39     3.99 3.99

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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Re your comments on bank deposit rates not moving up, we savers seemingly are the sacrificial fodder to the speculators under the central banking model as it has developed under stimulunacy. I'm over it and trying to find safe(ish) places outside of bank deposits, without touching shares at this late stage of the cycle: the only options are bonds (getting slaughtered since the OCR pause, especially at the long end right now as yields rise), and unlisted property funds (although yields coming down, best I can do is just over 5% for fund with redemption option, set to get worse if interest rates keep coming up).

Pity help the generations coming up to their retirements in the next 10 years: it's all risk out there, for little to negative real returns.

Actually, deposit rates are very high by international standards here, thanks in part to limited household savings and the need to attract it. It would be much worse otherwise, thanks to central bank policies

Oh for god's sake: talk about the race to the bottom. Even investing in PIE deposits on PIR 28% I'm no longer beating inflation (in the Marlborough Sounds) and am earning negative returns. But I must be grateful to my masters I'm not having to pay my bank to hold my money like in the EU? F*****g marvellous.

Central banks are the command economy that have destroyed, totally, the price discovery of free markets.

Markets have never been as distorted as now. Everything it broken. On hubris, the next step, as with all command economies, is human misery. Just like when the Soviet command economy went down.

Goodness me. Don't be a useful idiot. Be angry.

Hmn, how about this? the same like we study NZ/OZ economy with their binge on the current economic unproductive distortion? - we opt to shift through my other half, sorted the 'Will paper' out just in case, to the more productive economy, lower currency.. yet the govt has deposit guarantee scheme, yip.. 'different country' outlook.. their central bank reduce the interest rate too sadly,..recently to 5%(hiks), .. but every banks interest is still hovering around 6-7% - we always have the record before & after, very steady money in/out that is done for the laundering flag permit, in fact? it's just simply a steady simple savings/deposits.. within govt. banks, private, with internet you can set regular transfer to NZ banks here to assist in daily life.. and if you afraid still? .. use the US, Euro or even OZ banks that open up branch there for their business.. country clue? just up north from OZ, where you'll like to holiday there.. modestly priced of everything. Yet? our police uniform was long sourced from there.. more & more stuff imported from them by most of NZ big retailers both goods & grocery (Kmart, thewarehouse, automotive chains etc.) - smile though, at least Orr recent activity.. is targeting the Banks steady footing.. you'll see in about 3-5yrs Banks, eventually will increase the deposits funding interest.. as with the current settings, they'll just slowly deflating their prudent savers. Yes, we too follow Orr advise.. to spend,.. but because their treatment for prudent savers (as some like to call it here.. 'looser') - we liked to spend it on the overseas trip, don't go far away.. just near by steady/stable ASEAN countries, they're waiting for your attention, as you no longer valued here anyway, being replaced by the overseas $ that looking for 'save haven'.

and, breathe.

The interest rate cycle in New Zealand has clearly bottomed.

- can our property dependent economy handle sustained mortgage rate rises from here?
- can the global economy handle interest rate rises from here? ( the source of much of our funding)
- will retail sales improve if disposable income is sucked out the local economy via interest rate rises?
- will wages rise if employers have to redirect more income to debt servicing?
- because the banks have to adjust their capital ratio at some stage in the next 7 years?
- can our exports economy handle an increasing exchange rate if interest rate rise?
- will employment increase if interest rates rise?
I'm sure there are more....
But why have interest rates bottomed?
If you're right, have a re-read of my points above, and tell us how to prepare for what's coming...

Probably because NZ economic outlook likely to improve through government infrastructure investment. But it could go down again if the global economy gets worse.

I'm all for infrastructure spending, but it takes years if not decades to take effect. Besides, the days of mobilising thousands of men to build whatever, have gone. One man and a Big machine, times a few, will do the trick. School refurbishment? That will hopefully improve education once it's done, but that, again, takes decades to realise the benefits. Don't get me wrong - I think lower interest rates have been, and will continue to be, a disaster, but I can't see how we can do an about-face now, given the collective pickle we've landed ourselves in. (NB: and just like Mark Hubbard above, higher interest rates would suit me, personally, down to the ground!)

Not to mention the aging Demographics world wide, old people dont spend. 10,000+ people per day are retiring in the USA at the moment

Good point.
I was just discussing the Demographic Pyramid last night - how it's gone from being normal - bigger base, tiny top, to being inverted, a smaller base and top-heavy. That is only going to 'worsen'. Older people have, by and large, got one of everything they need; have seen what they want to see and been where they want to go.
Spending will fall. Consumer Sales will fall and Recseesion will stalk the Land ( well, that's how it went last night over a glass of red!) Cheers.

Also people are living so much longer than they use to. People complain that central banks lowering interest rates isnt doing anything to stimulate but i think it is stimulating its just not enough to fight against the huge affects of the largest group in history retiring.

Yes and a wave of boomers will need to sell there large today's prices who is going to buy them?

Immigrants and their extended families

While the spending takes years to take effect, the expected spend and RBNZ rhetoric has lifted wholesale yields .... this flows to fixed rates. Add capital increase (much of it actually front loaded) and it would be naive to think fixed rates cant get back to 4%.

I guess it’s also conceivable that retiring oldies will leave a big hole in an already tight labour market and this will cause inflation and higher rates. But yes it’s hard to see rates going up much any time soon.

100% with you bw, there is simply too much debt out there to be able to significantly raise interest rates, it's that simple yet so few get it.

Anyone that borrowed (or lent) and hasn't done servicing ability based on ~7% has not been prudent. I would call 7% a significant increase.

You'd be more prudent to do the service test at 20%

now THAT would slow markets!

"They are saying they have nothing to do with the Thursday RBNZ Capital Review." - So, more rises are coming !?

I imagine so. These increases are because the gap between best deposit rates (around 2.70) and best mortgage rates (3.39) is unsustainable. Typically, it's >1%, not 0.69% like now

by Nzdan | 14th Nov 19, 7:05am
Banks probably want interest rates to rise after a prolonged period of increasing loan book size. A bait and switch of sorts. Get everyone juiced up on low lending rates and then tighten up the vice on the balls.

Always possible, but equally so is:
- 'encourage' those who have held back from borrowing to "Jump in now! It's the bottom!" and when that little episode is over - drop them back down again and fund the lending book with cheaper funding? Remember a couple of years back when "4.69% for 2 years fixed!" was 'the bottom' as well?
The ol' Briscoes marketing technique....

I agree. But we will eventually hit peak lending, i.e. lowest interest rates possible with maximum loan amortization across the biggest societal cross section possible. Once we hit that point what do you think the banks will want to do when they're staring at that sort of loan book size?

Keep interest rates low forever?

Liked that sentiments.. which indicate the normal sanity, 'forever' is the mantra to those enslave on herd movements.. the truth we're all experienced.. rarely things fall into the forever category.. but mostly are in the fluid dynamics.

Yes, I do! Why? Because to get 'new' business in a saturated market they'll start cannibalising the customer base ie: How do you get a customer to move from one bank to another? Lower the cost of lending - works every time if the 'cut' is tempting enough. (NB: Banks will know very well that their competitors will be 'coming for their customers'. So I reckon, they'll make preemptive plans - drop rates and add handcuffs - to keep their customers' loyal'. But those bonds, won't last forever)

Two camps on that: one saying S**t I should wait two years ago, from buying this old derelict villa. The other one say: S**t glad I'm waiting, but hell couldn't get a loan now for that old derelict villa. - Both are distorted economic realities for many of young productive age Kiwis, so If you're prudent, highly qualified/paid, facing high cost of living. Moved out to OZ, wages more, living cost relatively lower.. more chances to get into quality housing. After all most of our cancer treatment protocols here.. is actually adopted from OZ.. tic toc tic toc NZ, ..more of us leaving you with longer hospital waiting list.

In October / November house price moved up as interest rate had fallen by 0.2% to 0.4% after OCR was reduced by 0.5% and now if the interest rate goes up slightly.....Will the house price fall ?

Above question is for all those who were commenting that house prices are moving up because of fall of interest rate :)

I think Orr, is slightly okay chess player compare to his predecessors, which sadly never been tested like him on this worldwide herd movement try to avoid next jolt of economic shock, he's still tinkering on/off about OCR.. then create a panel for decision, on/off for DTI.. alas both Lab/Nat.. will use delay tactics.. and today? even on the ease measure of this capital requirements? .. oddly, apart from more selective loan goes out? the mortgage rates moves slightly up.. slowly.. creepily.. leave the interest, OCR.. but use other methods, I wish he maketh 100billions for 5yrs.. but hey, .. dream is free right? ;-)