The BNZ has taken up the challenge posed by Westpac two weeks ago, matching Westpac's 5.99% fixed, three-year mortgage rate.
It means those two banks are sitting comfortably below other big banks with their three-year 'special' offerings and it will be interesting to see, first if they get much traction and second, how long it may be before the likes of the ANZ (currently with a rate 60 basis-points higher) and ASB (50 bps higher) decide to come down and join them.
The three-year term is not generally that popular with home owners, with one and two year terms attracting much more custom. Reserve Bank (RBNZ) figures as of February (latest available) show for example that only about $8.7 billion worth of the $310.4 billion of mortgages on fixed rates in New Zealand are for three year terms.
BNZ has made changes right through its offering, effective as of Thursday, but the three-year rate is the stand out.
Otherwise it has followed the pattern seen recently from other banks of increasing rates on more near-dated fixed terms, while reducing longer terms. The banks are betting on future cuts to the Official Cash Rate (OCR). Indeed wholesale market pricing is already suggesting cuts to the OCR in the second half of this year - though that's a very different reading to what the RBNZ is portraying.
As an example of the two-tier fixed structure that's forming, BNZ's six-month rate has been raised 30 bps to 6.84%, the one-year up 20 bps to 6.74% and the two-year up just 4 bps to 6.49% - which is 10 bps lower than the four other biggest banks. BNZ's floating rate has been moved up 40 bps to 8.14%, which is comfortably lower than the rate offered by the other large banks.
It will be interesting to see what the Reserve Bank makes of the division that's now forming between higher short-term fixed rates and lower longer term rates.
The RBNZ has been busily trying to talk the banks into raising both mortgage rates and deposit rates, but without a great deal of success. It doesn't want to see mortgage rates dropping from current levels because it wants to keep the pressure on with its fight to get inflation back into the 1% to 3% range. We are a long way from seeing that, with the latest annual inflation rate as of the end of March coming in at 6.7% - albeit that this was a reduction from 7.2% previously.
The surprise 50 bps rise to the OCR by the RBNZ earlier this month, taking it to 5.25%, was designed to push the banks into action on rates. But the response has been muted, with the major banks choosing to tweak shorter rates by less than that 50 bps rise, while trimming longer rates. There's been very little action in deposit rates.
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43 Comments
We need to produce better (move up the export complexity rank), not more. We often blame tyranny of distance when there are more fundamental issues holding back innovation in NZ.
Our gross domestic spending on R&D is nearly half of the OECD average. NZ also had less than 10% of university students graduating with a STEM degree in 2019, compared to 36.9% in Germany and 27-30% in Finland, Austria and Estonia.
We do a crappy job at both encouraging locals to pick up skills of tomorrow and bringing the right skillsets from overseas.
Wasn't it February 2021 when banks were offering 2.99% 5-year amid all the talk of negative interest rates?
At that time I fixed for 1-year at 2.09% as I wasn't sure how I wanted to structure my mortgage for my first home, but when I re-fixed in January 2022 for 5 years, it was 4.89%.
I had wanted to re-fix earlier, before the October 2021 OCR hike as I saw the writing on the wall, but the earliest was 30 days prior. As expected, mortgage rates ramped considerably the last quarter of 2021 and first quarter of 2022.
5-year rates would have to drop below 3% again for me to consider breaking my current mortgage, as bank fees would wipe out any savings unless I have at least 3 years left, but I don't expect them to drop that low by January 2024.
When I re-fix again in January 2027, I suspect rates to be in the 4% ~ 5% range, so I'm not expecting any shock.
But who knows? Maybe Russia drops nukes on Ukraine and China starts a war in the Pacific? Anything could happen in 4 years.
Like the thing that is driving a generation of young kiwis overseas, or the same thing that is causing wide social divide and pushing towards anarchy?
I can't put my finger on why people keep blowing the trumpet on the housing market (ponzi like) system in NZ?
I wonder why?
I spoke to a client today who was back from overseas for a few months in NZ - baby boomer. They have lived in many different countries and places all over the world. They couldn't believe the level of doom and gloom around NZ, commenting on how everyone seems agitated and fed up or depressed, divided against so many issues. They were considering a permanent move back but felt it needed a year or two to make their mind up as to if things improve. Money was no object for them for reference, interesting to hear though
Reminds me of the state of the UK when I made the decision to leave Japan. The country was in turmoil over Brexit, and it put the population into moaning overdrive. I'd never heard so much whinging in all my life. Even having family there wasn't enough of an enticement. That's why I came to NZ instead. Now the same social blight is happening here. Maybe time to move to Australia, although I hear they don't like us POMs.
People in NZ love to think that all these issues only happen in good old Nz and nowhere else in the developed world. Markets in the big Australian cities aren’t that much better off. I do feel lastly the crime is down to the very soft rules we’ve got here, and also a government that does nothing to incentivise people to work. Too many people capable of working living off our taxes.
I'm not saying this doesn't happen in other countries, NZ is just one of the ones at the front of the ponzi race.
Crime is more of a mental health issue than about punishment. More people are caring less about punishment as there life outside of the punishment facilities is less appealing than it used to be. For some it is better. We would need to redefine "punishment". More of the existing punishment has proven to be largely ineffective. The study cases are plentiful.
Their 1 year term is 75bps higher than their 3 year now. Regardless of where interest rates are heading, I wonder if this difference would be enough to force some people's hands. As in, they can't afford to refix at 1 year, but can at 3.
75bps is about an extra $250 per month on a $400,000 mortgage.
I'd imagine how the mortgage was structured. Having say 1/3 of a 500k mortgage fixed at 3years for that wouldn't cause as much grief as, say 1/2. It would be very interesting to see how those who bought through 2020-2022 structured their mortgages in order to better understand when the impacts of the refixes will hit the larger proportion of them and by how much. It would paint a much clearer picture of the financial impact to unfold throughout the year.
The banks don't care. You are making the same mistake that lots of people make, thinking that banks price mortgages by guessing what rates will be in future.
They don't, they sell you a mortgage rate today based on what they can fund today. They are arbitragers, they buy debt in the market at whatever rates it is available at today, and sell it to you with a nice markup. If they sell you a 5 year fix at 6% today, and the rates keep going up they really don't care, they secured their funding for your mortgage at probably 4%, and once your fix expires they will offer whatever they can currently fund it at.
[Banks] are arbitragers, they buy debt in the market at whatever rates it is available at today, and sell it to you with a nice markup.
Richard Werner is worth listening to on this point. It's easy to think of banks as intermediaries, borrowing at one rate and lending at another. But it's not an accurate depiction of how things work.
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