Three banks change home loan rates. But even though the trend is down, further reductions may be achievable for many borrowers, even with cash-back incentives

Westpac has reduced two home loan rates, effective Friday, October 12, 2018.

It has cut its two year fixed rate by -6 basis points to 4.29% matching most other rivals. And that now includes BNZ who made a similar change a few days ago.

But 4.29% is now the two year rate of two rivals, and unremarkable compared with four others on 4.19% which is now the market-leading level for that term.

Meanwhile, Kiwibank reverted its two year rate back to 4.35%.

However, Westpac is making a market-leading move with its eighteen month fixed rate by launching a 'special' at 4.15%. ASB is the only other bank with a rate this low for that term.

Even though these are 'specials' they are still carded rates. Negotiation should enable you to get even lower rates. Your influence at negotiation will very much depend on the strength of your financials

And it may depend on the size of your loan, the larger the commitment the larger the discount.

For example, for a one year, a -10 bps discount should be achievable for loans over $350,000, and for a large loan over $750,000, perhaps more like -15 bps. And depending on the bank, that could take a one year fixed rate down to 4.05%, or even lower. Some banks might even match the HSBC Premier rate of 3.85% although that would be rare indeed.

For eighteen months or two years, it seems unlikely that rates lower than 4.15% will be easily achievable, although in some cases they might. 

For three years rates as low as 4.29% might be achievable for large commitments.

For four years 4.79% might be where the lower limit is.

For five years, Westpac has the market leading carded rate of 4.99% for the major banks. But another -10 bps might be achievable at some other banks. SBS Bank sets the pace for five year rate offers.

Of course, in some cases "there is more" - meaning cash back benefits are still available, maybe as an alternative to a rate discount, or in a few cases, in addition. When you are thinking about this, the sort of cash-back that could be available might be of the order of 0.7% of the loan value, especially if it is a new account to the bank. But expect the offer to be capped at something like $6, $7, or $8,000.

From mid-June to mid-August, New Zealand two year swap rates fell -20 bps. This gave the room for the Spring real estate selling season reductions. Since mid-August, those same wholesale swap rates have move very little. And despite the big shifts that continued overnight, local swap rate markets have opened here virtually unchanged this morning.

With wholesale swap rates not moving much recently, the retail rate tightening of carded rates is more 'competitive' than cost driven.

See all banks' carded, or advertised, home loan interest rates here.

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

below 80% LVR 6 mths  1 yr  18 mth  2 yrs   3 yrs  4 yrs  5 yrs 
as at October 11, 2018 % % % % % % %
               
4.99 4.15 4.85 4.35 4.49 5.55 5.69
ASB 4.95 4.19 4.15 4.29 4.39 4.95 5.09
5.25 4.19 5.05 4.29 4.49 5.59 5.59
Kiwibank 4.99 4.19   4.35 4.49 4.99 5.09
Westpac 4.99 4.19 4.15 4.29 4.49 5.29 4.99
               
4.50 4.19 4.35 4.39 4.49 4.99 5.15
HSBC 4.85 3.85 3.85 4.19 4.69 4.99 5.29
HSBC 4.99 4.19 4.49 4.19 4.49 4.89 4.89
4.85 4.19 4.19 4.19 4.49 4.95 4.99

In addition to the above table, BNZ has a fixed seven year rate of 5.95%.

And TSB still has a 10-year fixed rate of 6.20%.

Update: This story has been corrected to fix comments about where the market-leading rate levels are for a five year fixed offer.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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27 Comments

They've got plenty of margin to play with still because the RBNZ has become toothless, but it's starting to look desperate.. Australian bank profits are going to get hammered over the next year. NZ needs to be very careful that we don't end up subsidising the losses incurred on Aussie housing market loans by leveraging into stupidity....

My current loan, (although very modest by today's metrics) is up for renewal in 3 weeks with ANZ... very curious what will come of my negotiations with them. I'm coming off two yrs at 4.70%.

My mega-risk-averse inner voice is hassling me to lock a longer term for the first time..3 yrs plus kinda thing?? Regardless of the rate I get, I'm going to be hammering that principal to my limit.

would ask for the educated views of the commentators here, but the only true way to be sure would be a Biff Tannen-type almanac from the future aye?

exiled

It will depend on your equity position, but if I were borrowing now I'd want to find the best 4-5 year fix in the high 4%'s and take the hit that I may be paying more in the short term (first 6-12 months).... it's just a view and I have no skin in the borrowing game... The one year teaser rates could be poison in 18 months time. I can't see how the RBNZ is going to keep the cash rate where it is if internationally induced inflation continues more than the next 2 -3 months.

Either way the 1 and 18 month rates look like a fools trap!

This is bad advice from kamikaze Nic, because interest rates could still go down for a while yet and you'd lose a couple grand a year.

See my comment below on how to spread risk. The optimal strategy if you can accumulate savings at the same time is to go 100% floating, because it will get you out of debt faster.

You are talking about losing everything (possibly) for the sake of a few grand a year (possibly).
Rates can't go much lower. But looking at history they have definitely been much much higher.
Fixing is insurance. You can be sure you can manage your payments for three years, which costs extra. Or you can take a punt and save some money.
Your example below does not spread his risk. Spreading your risk would be having some money in cash, some in a house, some in gold, some in some absolute return funds, maybe some bonds from a nation with good credit (like Germany, not the US), some non correlated blue chips and so on.
Your example below just puts his money into different obligations on the same asset. His risk profile is exactly the same (that something happens to interest rates or something goes wrong with housing).
I would recommend you move out of Aussie banks if you can. They are in trouble.

If you're cutting things so fine that you are at risk of losing everything then you shouldn't be borrowing at all.

I took out a new loan several years ago and fixed for the lowest 1 year rate. When it came up to refix I was able to get a very low rate again for 1 year. I'm going to keep doing this until I see a real trend of the rates going up.
I may be young and naive, but are the rates likely to have massive increases in a short time, leaving me unable to react in the space of 10 months (you can arrange to fix a loan 2 months in advance, at least with my bank)? Potentially, but I think unlikely. 1 year is not such a long time that I'm unable to react to market shifts. If the market goes to garbage and rates go up I'm not going to have the absolute best rates over the total loan term that I could have, but I'll have worked my butt off when the rates are low to reduce my debt as fast as possible.

Bare in mind, that I'm young, new to borrowing and don't mind a bit of risk.

Bare in mind, that I'm young, new to borrowing and don't mind a bit of risk.

That's the spirit, you're doing great.

You're doing great Tom, stay on your path and don't get distracted by commenters who don't have "skin in the game"

“Rates can’t go much lower” - true, but there is still 1% difference between the cheapest 18 month rate and 5 year rate. So they would have to go up quite a bit for the 5 year to work out better. Anyone who has fixed for a 5 year term in the last 10 years has paid a lot of extra money to get that certainty.

Hi Jock

Buying certainty in uncertain times is hardly kamikaze. When you look at the loss of control that our Australian overlords are experiencing with increased funding costs and pass on of higher mortgage rates in Australia rising despite a static RBA rate, then the consideration that our rates will be maintained low forever would be foolish. Possibly fix half the loan for longer and half at shorter terms rolling over, but be mindful, the international debt markets are contracting and liquidity will get tighter and more expensive. There are huge tranches of corporate debt that will need re-financing too during 2019.

That is a much more balanced strategy. Yep, interest rates are going up in Australia for the very reasons you have mentioned. For NZ, I think there is a greater risk of recession leading to job losses, which in turn impacts people's debt servicing ability. That is where things will really bite.

It's sad that a lot of people who borrow seem to do so in a way that brings their savings rate to zero, leaving no safety net, and no way to pay down debt faster. John Key's one good piece of advice to NZers?

Pay off your mortgage

All I can say is, thank goodness we have LVRs. It's practically a fluke that we have this policy. I can't say the same for the Kiwisaver withdrawal scheme, that's definitely bad and should be age-limited to under 25s.

What inflation globally....................

Current rule when refixing: choose the lowest rate ( in most cases 1 year fixed) and negotiate down.
It is futile fixing for longer than 2 years as you are paying a premium up front, and interest rates are likely to fall further, or if not flatline, or if they rise will be at small increments (unless the banks wish to own a lot of Auckland houses).

It is not the 90s anymore.

"interest rates are likely to fall further"

No skin in the game but that's possibly a little brave....

Did he just say "this time it's different"!!!

can't see that happening... Kiwibank have already walked away from being competitive in the short term market... Westpac (my bail out bet) have lowered here and raised in Australia...

Who knows but debt is about to become a beauty parade... The prettiest will be okay, the ugly, meh!

How much money do you comfortably save in three years? Let's say you save 50000 in three years. Split your loan into two, making the first portion 50k and make it a floating offset account which helps you pay off that loan portion faster. Then use a three year fixed rate for the remaining loan portion.

You can adjust this for one two or three years to suit your perception of upside interest rate risk. I don't know what will happen next. Seems like interest rates are coming down, but you never know what is around the corner. That's why I like to split and use my savings to offset, you get a much lower interest rate as long as you are disciplined.

If you're bold as brass, and you save lots, then just go 100% floating with an interest rate offset and pay off the loan faster. The beauty of this is that if your circumstances change, or if the sh!t hits the fan, then you can just call the bank and go fixed at any time. Pretty handy if you have to go down to one income for any reason.

Find out how powerful the interest rate offset is by using the bank's online calculators. For an average sized loan, by saving 100 or 200 dollars a week you can pay off around 10 years earlier.

exiled, listen to people who have loans not to people who don't. (it's bit like asking your single girlfriend who can't hold a relationship together for relationship advice).
If the loan is for your own home, do whatever it takes to reduce the principal asap, that means lock in short (1 year) and repay the max at each renewal. You can also repay 5% of the value of the loan during this term without penalty.
If the loan is for an investment property go for interest only because you are actually paying only around 2.8-2.9% actual interest (say 4.15% interest - income tax of 30%). I would still go for 1 year (and I am doing this with my multiple loans whose renewal dates I stagger throughout the year, it's the closest to floating but much cheaper).
Keep us updated how you go

The interest rate curve is starting to steepen (i.e. the longer term rates are getting proportionally more expensive than the short term). This is a return to some form of normality after a flat profile for a fairly long period.

Don't claim to know what will happen but with the Fed Reserve actively looking to raise multiple times in the next year (assuming no Trump intervention) , the potential for inflation with a lower NZD and the potential risk elements in the Aus market, I would take the view they will more likely increase over the next 18 months. The OCR has only so much impact in a global environment with "shock potential" and Orr will have little room to move.

David does SBS or Westpac have the lowest 5 year?

Ah, yes. It is SBS Bank that has the market-leadiong position at five years. My error. Westpac only 'leads' there among the majors.

I would be going HSBC 3.85% or negotiating say 3.95% for one year fixed with an Oz bank or Kiwi Bank- rates are gonna stay low for longer. The 1 year fixed strategy has worked well over the last few years. Might even get some cash right now if you change bank too!

With the difference between 1 year rates, and five year rates , been 0.5 to .75 %, the one year rates would have to rise more than that before you are worse off than on a 5 year rate. Every day you are on a 1 year rate vs 5 year , the equation changes , because of the money you have saved on the lower rate up till then .
Things would really have to change for the banks to change rates more than 0.25 at a time.

Agree - things will really need to change for the 5 year rate to be the better deal than say a 2 year rate. But who knows what will happen from here, the situation is very complex.
So it really comes down to your risk profile. If you can sustain a higher rate in that unlikely scenario then the shorter terms look better, but if you really can’t afford much more than 5% repayments then the 5 year rates are starting to look attractive.
I doubt rates will go stupidly high - half the population would be foreclosed on and all banks would fail.

BTW another approach is to split your mortgage and fix some long and some short. We have traditionally done that but I’m trying to get them back in sync now as I reckon the banks offer better rates for one big loan than for two smaller loans.

Will the ‘Floating’ mortgage rate ever float again?
Or will it stay ‘fixed’ to the ceiling at the high rate of 5.95%?
1 year fixed is the new floating.