Volatile wholesale interest rates have induced ANZ to cut its key 2 year home loan rate, now well below its main rivals, but not quite back to where where it was at the end of May. Westpac and BNZ follow, BNZ goes lower

Following recent wholesale rate movements, ANZ has dropped the interest rate on its two-year fixed home loan special by 35 basis points to 5.45% from 5.80%.

The cut is effective from today, Tuesday, July 5.

The effect of this 'surprise' reduction is that the ANZ two-year 'special' is now 24 basis points lower than all its main rivals, except for ASB where it's 35 basis points lower.

The next Reserve Bank Official Cash Rate review is on Wednesday, July 13 - in eight days time - and markets have priced in a 50 basis points rise to 2.50%. But international wholesale rates are sliding, and local wholesale swap rates are falling in sympathy.

In fact the two year swap rate was 3.80% at the end of May, rose to 4.56% by the middle of June, and has now fallen back to 3.80% at the end of trading Monday.

At the end of May, ANZ's two-year fixed home loan 'special' was 5.25% and then rose to 5.35% in mid June, rising again to 5.80% in late June.

So today's sharp 35 basis points reduction doesn't actually take it back to those late May levels. They still remain 20 basis points higher after all these shifts.

To be fair, it isn't clear where all these changes are about to settle. But the very recent trend is sharply lower from two weeks ago.

An ANZ spokesperson said: "While wholesale rates remain volatile and the Official Cash Rate is expected to continue to rise, where there is an opportunity we will pass savings onto customers. Interest rates will continue to be reviewed in response to international and local market conditions."

'Local market conditions' are sharply weaker. Real estate market activity is unusually low, especially in the large Auckland market, and that is spreading nationwide.

So banks are left with the embedded refinance market to fight over to hold or grow their market share. Defending will become the immediate priority, so this move lower for such a key rate will undoubtedly see a response from its main rivals. ASB is the most exposed right at this point.

Today's reduction by ANZ isn't the first home loan rate reduction recently (Co-operative Bank trimmed some long rates recently), but it is the most important, and will be market-moving.

Update: Both Westpac and BNZ have now responded. Westpac is matching ANZ with a -24 bps reduction. BNZ has gone lower, down -30 bps to 5.39% for two years fixed.

A lot will depend on how international wholesale markets react when Wall Street re-opens tomorrow, and their view of the chances of the US moving towards a dip in economic activity - and how the US Fed will react to that and the threat high inflation poses. The policy balance between the two, and the market perceptions of them, will be crucial, and those will play out over the next few weeks until the Thursday, July 28 US Fed meeting (NZT).

One useful way to make sense of these changed home loan rates is to use our full-function mortgage calculator which is also below. (Term deposit rates can be assessed using this calculator).

And if you already have a fixed term mortgage that is not up for renewal at this time, our break fee calculator may help you assess your options. But break fees should be minimal in a rising market.

Here is the updated snapshot of the lowest advertised fixed-term mortgage rates on offer from the key retail banks at the moment.

Fixed, below 80% LVR	6 mths	1 yr	18 mth	2 yrs	3 yrs	4 yrs	5 yrs
as at July 5, 2022	%	%	%	%	%	%	%
ANZ	5.35	5.35	5.65	5.45 -0.35	5.99	6.85	6.95
	5.35	5.35	5.65	5.80	5.99	6.85	6.95
	4.99	5.35	5.59	5.39 -0.30	5.99	6.09	6.19
	5.45	5.19		5.69	5.89	6.05	6.29
	5.35	5.35	5.59	5.45 -0.24	5.99	6.29	6.39
Bank of China		4.99	5.39	5.49	5.80	6.05	6.15
China Construction Bank	5.35	5.35	5.65	5.80	5.99	6.85	6.85
Co-operative Bank	5.09	5.09	5.49	5.69	5.89	6.19	6.29
Heartland Bank		4.90		5.29	5.59
HSBC	5.29	5.19	5.55	5.69	5.89	6.59	6.69
ICBC	4.39	4.45	4.85	5.09	5.45	5.69	5.89
	4.95	5.15	5.35	5.59	5.69	6.09	6.25
	4.85	4.85	5.35	5.35	5.65	5.89	5.99