The latest offer from state-owned Kiwibank pushes the one year fixed rate down to 3.85% - and is accompanied by matching term deposit rates cuts

The latest offer from state-owned Kiwibank pushes the one year fixed rate down to 3.85% - and is accompanied by matching term deposit rates cuts

The next bank to lower the bar on home loan interest rates is Kiwibank.

Today (Monday) they have announced their one year 'special' will be 3.85% which is -4 bps lower than the previous benchmark that was offered by four of its rivals and three of them were big Aussie banks.

For Kiwibank, that is a -20 bps reduction from an old rate that was no longer competitive.

Kiwibank 'specials require 20% equity only, and are also available for Welcome Home Loans customers. Specifically, Kiwibank doesn't require you to shift your wage or salary credit into one of their current account products as most other main banks do.

At the same time, it is reducing its standard one year rate by -20 bps to 4.60%, and their standard two year rate to 4.74% (also down -20 bps). But there is no move announced on their two year 3.99% 'special' rate.

3.85% is the lowest one year rate in the market at this time and extends the trend of lower home loan rate offers.

The background situation is of falling wholesale rates, and swap rate reductions have actually picked up.

Since the beginning of May, one year wholesale swap rates have fallen -19 bps to 1.52%, two year swap rates are down -19 bps to 1.49%, and three year swap rates have fallen -20 bps to 1.50%. These are all historic lows. And as our charts show, the pace of the reductions picked up markedly after the March 27 signal that an OCR rate cut was likely. The actual May cut hasn't changed the pace. Wholesale markets are keying off what they think Adrian Orr thinks.

At the same time in the background, banks have been quietly reducing some key deposit rates, including where the important volumes are in under one year term deposits, and in some key savings accounts.

And in parallel, Kiwibank is also reducing term deposit rates across the board. Short term TD rates (less than for six months), are down -15 bps to -20 bps. Rates between six months are down -5 bps. And rates for all terms of nine months and longer are down -10 bps.

Both these types of reductions allow banks to reduce home loan rates while maintaining their net interest margin.

And don't forget that TSB is offering "a cash contribution of up to 0.50% of the total loan amount, up to a maximum of $4,000" until June 15. There are conditions of course, but many borrowers should be able to meet those. TSB does not price-match Kiwibank offers.

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

Here is the full snapshot of the advertised 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 May 27, 2019 % % % % % % %
ANZ 4.99 3.89 4.19 3.95 4.05 4.85 4.95
ASB 4.95 3.95 4.19 3.89 4.05 4.35 4.45
4.99 3.89 4.79 3.95 3.89 4.35 4.45
Kiwibank 4.99 3.85   3.99 4.09 4.29 4.39
Westpac 4.99 3.89 4.09 3.95 3.95 4.35 4.45
3.99 3.99 4.09 3.99 4.15 4.39 4.49
China Construction Bank 5.15 5.10   3.65 3.90    
ICBC 4.85 3.99 4.19 3.99 4.49 4.95 4.99
HSBC 4.85 3.99 3.99 3.99 4.39 4.89 4.95
HSBC 4.99 3.89 3.89 3.99 3.99 4.49 4.49
 with price match promise 4.85 3.89 4.09 3.89 3.89 4.35 4.45

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

Fixed mortgage rates

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Hi David, It might help home buyers to know that a bank’s advertised “special rate” is essentially a teaser rate which only applies to existing (perfect profile) bank customers. Get thyself to a good broker!

We had no trouble getting the previous Kiwibank special of 3.99% for 2 years (back in the distant past of February when that was a good rate). No previous relationship with the bank, but a pretty comfortable deposit of ~30%. They threw in cashback of 0.5% after we asked for it.

That 30% deposit was the clincher when they want your business.

Wrong. There is no such exclusion on any bank special. The exclusions will only be based on equity.

No interest rate cut is going to balance the price correction coming, NZ wide.

Chasing rates down means weakening pricing power and weakening market demand. The risk is that
we end up like the Australians with a massive misallocation of resources by banks into real estate assets
and their developers - by far the single biggest loan asset class in all their banks' balance sheets.
When marked to market in the coming years, these asset values will drag on capital ratios and be a continuing
nightmare to banks and regulators. And take away funding capacity to non-real estate infrastructure that
can bring us to the 21st century. Hope that banks can learn from across the ditch that when excess supply
meets falling demand, the solution is not to chase financing the suppliers and unsold and unsaleable inventory.

And Kiwibank specifically are more exposed to housing on their balance sheet than most

Still going down, who will be the first at 3.79% ? : )

Already there, been on 3.79% for since February with HSBC

Guessing both our and the Australian banks are trying to fend off their larger cities going through property crashes which would be very bad news for them as it could result a huge amount of negative equity within those cities. Bit too late for both Perth and Darwin who are now around crash levels of -20% according to the recent published data. Perth has dropped -18% and Darwin at a huge price drop -28% since 2017.
Australia CoreLogic property data;
Click on the 'Since Peak' tab option.

Does anyone else see the criminal levels of profit taking? Charging north of 5% on variable mortgages and paying a paltry 0.1% on savings accounts...

Time we sold this bank