We examine the margin shifts as wholesale money rates rise just as one large mortgage bank cuts a key rate, looking at the pressures and motivations for the move

The drums may be beating to capture your attention, but we look at the motivations behind the marketing

Today's announcement (Saturday) that ANZ is offering a sub-4% one year fixed home loan 'special' comes at an odd time.

That is because wholesale rates are on the rise.

In fact, the rise for durations 2 to 10 years in the wholesale swap markets have been about +25 to +30 bps over the past two weeks. That is enough to get banker's attention and put upward pressure on the funding costs of retail home loan rates.

At the one year duration the rise is less at about +10 bps. But that is still enough to cause an internal reaction.

One of the first ways this will manifest itself is in the ability of mortgage bankers to negotiate below-card discounts.

But if these rate rises are sustained, higher carded rates are likely.

The shift from the start of November is worth reviewing, mainly because it is unusual in the absence of an official RBNZ trigger.

ANZ claims that their new lower offering is "we want to make sure that we are supporting our customers into homes". But behind the scenes there is a real commercial motivation. The next six weeks are an important time for bank rollovers as there are a disproportionate level of fixed rate loans falling due in this time of the year. Capturing more of this is what the marketing move is all about.

Headline rates are sometimes harder to extract discounts from, but the rate structure at present might not be as 'fixed' as it seems.

Here is one way to look at it:

    31-Oct-18   9-Nov-18
Fixed term Lowest offerer, any bank Rate Swap margin   Rate Swap margin
    % % bps   % % bps
1 year HSBC Premier 3.85 1.94 191   3.85 2.04 181
18 months HSBC Premier 3.85 1.97 188   3.85 2.11 174
2 years SBS Bank 3.95 2.00 195   3.95 2.19 176
3 years ASB 4.39 2.09 230   4.39 2.35 204
4 years SBS Bank 4.89 2.19 270   4.89 2.49 240
5 years SBS Bank 4.89 2.31 258   4.89 2.63 226
7 years BNZ 5.95 2.53 342   5.95 2.85 310
10 years TSB 6.20 2.79 341   6.20 3.10 310

And here is the same comparison just for the main banks:

    31-Oct-18   9-Nov-18
Fixed term Lowest offerer, main bank Rate Swap margin   Rate Swap margin
    % % bps   % % bps
1 year ANZ, (BNZ) 4.15 1.94 221   3.95 2.04 191
18 months ASB, Westpac 4.15 1.97 218   4.15 2.11 204
2 years Kiwibank 4.19 2.00 219   4.19 2.19 200
3 years ASB 4.39 2.09 230   4.39 2.35 204
4 years ASB 4.95 2.19 276   4.95 2.49 246
5 years Westpac 4.99 2.31 268   4.99 2.63 236

The difference between the two tables is that the main banks have taken their margins down to what the challenger banks were living with.

Can they sustain these lower levels? Probably. But do they want to sustain them? Internal profit pressures will probably argue against going lower for any length of time.

Getting another bank down to the lowest offerer shouldn't be too difficult. Banks are usually keen to match the main rivals to hold or win business.

Going below carded rate offers is also possible and that will depend on a range of factors you bring with the business available to a bank.

The two big factors are the strength of your financial position, and the size of the loan.

You are in a stronger position when you have an loan-to-value ratio of less than 80% if you are an owner-occupier.

And if you are borrowing more than $750,000 you will almost certainly get a larger discount.

A combination of the two might entice a bank to offer up to -15 bps below carded rates.

You may also find cash-back incentives are available. Figure on 0.7% of the loan value, up to a maximum of about $8,000.

Usually it will be one or the other; discount or cash, but a combination within those limits is worth talking about.

Which is better? Often you are better to take the hard cash (and apply it against your loan balance is recommended) than the discounted rate. But the math is easy to work out. Use our comprenensive mortgage calculator here to do that.

And if you aren't exactly in the market today for one of these newly lower rates, you may wonder what the costs of breaking an existing contract would cost. You can estimate that here.

We are in a falling rate environment, but regular readers will know that internationally, rates, inflation and policy direction seems to be firming, and quite quickly in some major financial markets. In the intermediate term, New Zealand won't be able to avoid those global pressures. And they may hit closer to home if local inflation moves up on the back of higher fuel prices, higher taxes, and lower exchange rates. The lower rate environment may only be here for a relatively short time.

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 31, 2018 % % % % % % %
               
ANZ 4.99 3.95 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
4.99 4.15 4.79 4.29 4.49 5.19 5.39
Kiwibank 4.99 4.05   4.19 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 4.29 4.35 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 3.95 4.49 4.89 4.89
4.85 4.05 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%.

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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34 Comments

In Australia, there have been moves to draw in 'high quality' customers with low rates whilst simultaneously squeeze 'low quality' customers who have been unable to refinance elsewhere.

While the same may not be happening in New Zealand, emergency low interest rates post the market peak don't suggest a robust lending environment. Either volumes are under pressure due to lack of market activity or there are moves to 'adjust' the quality of the loan book before things deteriorate.

I notice the kiwisaver FHB withdrawal rates are trending down from a peak in May, should be trending up with interest rates dropping and the summer selling season kicking in. Or have we drained the pool of those with the income to support a mortgage and enough kiwisaver to rustle up a decent deposit?

I think so Pragmatist.

If a high proportion of vendors are happy to take their properties off the market and not sell then things could keep pottering along for a while. This has been the status quo for about 2 years now in Auckland. But if a higher proportion of vendors decide they need to sell, the Auckland market will look at a lot like Sydney/Melbourne does currently.

No this decline in house prices could not happen in Auckland because it has leafy suburbs close to the CBD & the double grammar zone

And the America's Cup

Is there any increase in business lending as a percentage of total lending?
And
Does anyone know where the info whether each banks ledger month by month
?

1. Business lending data
    - here, and
    - here. (Best to download the Excel file).

2. Not available month-by-month, but are available quarter-by-quarter here. Choose the section of each banks loan book you need from the "Asset quality" options.

It's a clever ploy to distract from the recent FMA review. ..

And seems to be working, the focus has shifted to the discussion of this AMAZING SPECIAL

Not easy to understand this one given the recent $500mio bond issuance at 3.70% by ANZ and the 11bps increase in the 1 yr swap in the last 10 days (albeit comparatively the 2 year has jumped 20bps)

Seems like an opportunistic way to create and re-fix a whole bunch of customers for a year as when rates start to increase in line with the Fed, the ability and/or interest to move banks will decrease (will mean a lot of price matching behaviors up the curve ala petrol companies rather than the current price making paradigm).

Cynically I might suggest that this special will be around for about 4 weeks which coincides with the next Fed announcement Dec 18-19?

I see National/the herald have finally cottoned on to how much of a flop Kiwibuild is turning into.. only 388 pre-qualifications completed so far.

https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12158247

Meanwhile, Collins continues to raise questions about KiwiBuild's popularity, after the deadline for KiwiBuild homes in Wanaka was extended because of a lack of interest.

After only 20 entries were received after the ballot opened in early October, the deadline was pushed until November 18.

20 applicants for 10 houses in Wanaka.
So much for the massively discounted homes, those that can meet the qualification threshold don't seem to be interested, and so much for those that were whinging about well off parents buying the kids a kiwibuild house.

Maybe the govt is going to end up with a lot more state homes that it expects.

Lame how the Herald and Stuff both recycled Collins’ statements as a headline. There is no evidence here that kiwibuild houses won’t sell or that there isn’t interest. Having said that the whole housing market is poked so who knows.

Quite dumb to quote the above

Explain your reasoning (if any).

How many pre qualified applicants do you need per dwelling?

Except for the Queenstown, the ratio is decent

Given the supposed size of the housing shortage in Auckland there should be at least 1000 applicants in the system by now. But no, a total of 388 so far. And that includes the 20 that applied in Wanaka, and no doubt a few others around the country that got pre-qualified to be ready for any announcements in their area.

388 total applicants so far, and 3375 contracted kiwibuild houses/apartments. So we have almost a total of 10% of the applicants we need to sell the houses already contracted.

Wanaka is the same, 20 applicants, 211 contracted homes. Better hope the interest picks up massively once there are actually houses to look at or the Govt might be the biggest Airbnb host in Wanaka .

From the article. . Which makes complete sense. .

We tell people that they only need to complete pre-qualification when they have found a KiwiBuild home they want to buy and are ready to enter a ballot

So not sure what you are smoking

Nice, going with the personal attacks.

You don't think there should have been more than 88 couples/people interested in an apartment in Onehunga if these were actually affordable? I mean Onehunga has a lot going for it, fairly central, good transport connections, reasonable neighbourhood.

650 is definitely not affordable for most people. . But that is the state of of our housing market. . Without kiwibuild there wouldn't be much choice for many aspiring buyers. .

Hopefully that price will come down with time. .

You might want to suck up to judith to see what she giveth you

It is the state of our housing market, pity Labour are trying to fix it with such a shit program. I thought at first it might actually be useful, but as time goes on I can see it having less and less effect, and potentially backfiring as they sign up all these developments and guarantee to buy a bunch of houses that may not sell.

Clearly your assumptions are ASSUMPTIONS. Keep assuming. . Not sure how pragmatic it is

To me the bigger problem is that the government has back-tracked on their condition that KB owners were not allowed to on-sell for 5 years. Now KB houses can be "flipped" any time and 70% of the profit can be kept by the vendor. That doesn't equal "providing affordable housing for those in need" to me

Who said anything about those in need. Those in need are looking for state houses, not kiwibuild. Different program.

OK, then:
To me the bigger problem is that the government has back-tracked on their condition that KB owners were not allowed to on-sell for 5 years. Now KB houses can be "flipped" any time and 70% of the profit can be kept by the vendor. That doesn't equal "providing affordable housing" to me

70% of what profit? in three years there will be stuff all capital gains.. why buy a used kiwibuild for more than the first owner paid, when in most cases FHBs will still be able to enter a ballot for a new kiwibuild in the same area or just down the road for the original price.. Going to crimp the capital gains for a while..

then deduct cost of selling. RE agent commision, laywers fees etc.

Then deduct 30% of any gross capital gains to pay the govt.

You might find you actually go backwards.

I'm not the ones making assumptions. I'm looking at the numbers as (deliberately poorly) reported. At most 10-15% of the people that start the pre-qualification process seem to be completing it, (it was 3500 who had started it before the first ballot opened, now up to about 7000 total who have started) and there is really only one step that is potentially difficult, qualifying for a mortgage. So if all 42k that had signed up for notifications about kiwibuild tried, @10% making it through that's 4200 buyers . Now subtract an allowance for both people in a relationship signing up for emails, a bunch of not eligible people like journalists, property owners etc and how many buyers do you think you really have?

Yet so far the govt has already signed up for 3400 houses. And those have been signed up at current pricing. Do some maths, instead of reacting emotionally just because you think kiwibuild will somehow help you get into a house. They need to stop committing to buying more expensive houses until they see what effect it has on the market, and if the pool of buyers grows as the houses get sold.

You're just a sad case,...

You don't get the fact that people will only pre qualify only when there is a development in an area of interest.. so far papakura and onehunga have had a decent amount of interest..

Only one person can get a house, not sure why you expect thousands to pre qualify in advance..

You keep going on about "in an area of interest", so lets look at the areas the kiwibuilds are already balloting in.

The areas that are already open for applications and balloting:
McLennan: 18 already balloted, another 5 currently open, and another 63 coming..
Onehunga: 25, all balloted already.
Northlake: 10 balloted, another 201 to go.
Tuatahi: 18 apartments, open for ballot entries.
Otahuhu: 10 open for ballots. 9 more later.
Lakeside: 10 open for ballots, 165 more to come.

By my count the areas that are already open for balloting have 534 homes.. or almost twice as many homes as people that have complete pre-qualifications for ballots in those areas.

If only 20 people were interested in the first ballot (which had 2 & 3 bedroom homes) at Wanaka, where are the other 190 odd buyers going to come from? Its still the same bloody area, so anyone that was interested in a 2 or 3 bedroom home in that area should have already jumped into the ballot. Maybe a few waiting for 4 bedroom places, but what of the buyers for the rest of the 2 and 3 bedroom homes?

you just keep rattling on.....

count how many have been ballotted... forget about those 'coming''.. as and when they actually come, is when people will pre qualify...

simplest example : "mclennan another 63 coming" they are coming anytime in 2019... why on earth will someone prequalify themselves for those now?????? unless they are like you who is on pins...

you seem to get confused between "ballot and coming"

right.. or course. Because getting in the ballot for a three bedroom place in Wanaka/Papakura/Te Kauwhata now and maybe getting one, and if not still being able to get in the later ballots is somehow too difficult for people like you to understand. If you actually want one, you need to get in every ballot until you get one.

You'll probably jump in the last draw then play the victim card when you miss out.

stop assuming...

"assumption is the mother of all f ups"

I'm not assuming, i'm looking at simple logic and probability, you're the one running round chasing your tail. Simple logic and probability is beyond you it seems.

your such an assumptive fella... god save you

logic is beyond you..so stop wasting peoples time..

"How many pre qualified applicants do you need per dwelling?

Except for the Queenstown, the ratio is decent"

heh, this popped up again in the sidebar.

The updated answer is .. more than 0. which is what Te Kauwhata got. And more than a 40% acceptance rate like Wanaka.

I think long term rates are starting to rise and the banks are holding out 1 year specials as the rates in 12 months will probably be much higher regardless of ocr. Look at floating rates massive margins so ocr doesnt mean low mtg rates even in short term fixed options. I have spread risk over longer terms as rates can jump quickly and are at historical lows even the 5 year rate. Its often not the rate u pay but the rate u pay it off that makes more impact on overall interest cost anyway but be careful putting it all on 1 year fixed i think.