Regular readers will know that swap rates have fallen sharply in the past week.
The two year swap rate that was 2.86% at the start of the year is today at 2.59%.
The five year swap rate that was 3.28% at the start of the year is today at 2.82%.
Respectively, those are a -27 bps and -46 bps falls.
For the ten year swap rate we have seen a -53 bps fall. The ten year swap rate is near its all-time low (which was reached yesterday).
Counteracting these falls have been rises in CDS spreads - the costs of 'insuring' for bank risk that investors now demand, has spiked higher recently.
But despite that, the wholesale money cost reductions are too big to just hang out there. The competitive impulse of the New Zealand mortgage market is too strong for at least one of our retail banks to not break ranks to grab some hard-to-find market share.
In November 2015, SBS Bank launched a 3.99% one-year fixed rate. It did that when the one year swap was 2.72%. Today it is 2.58%.
In October 2015, HSBC launched a 4.25% two-year fixed rate. It did that when the two year swap was 2.73%. Today it is 2.59%.
So lower 'special' fixed mortgage rate offers are very much on the cards.
We expect lower carded rates might hit the market as early as next week, especially if the recent fall in swap rates is sustained.
And if borrowers hold off in anticipation, any drop in 'loan volumes' suffered by banks will encourage them to get a more attractive offer in front of clients.
No doubt, off-card rate offers are much more flexible these days. Swap plus 150 bps might be a point bankers will start talking. (In some cases, swap plus 130 bps may even be achievable with A grade financials.)
That puts rates below 4% again.
At the very long end, TSB launched its 10 year fixed rate offer in February 2015 at 5.89% when the swap rate then was 3.86%. It has since pulled that carded offer back to 5.75%. But today the 10yr swap is just 3.22%. Such margins might attract others into this specialist space.
Borrowers now have perfect conditions to negotiate very attractive rates, and sub 3.90% rates may even be possible for a two year fixed term.
Today, mortgage rates now compare across all banks as follows:
| below 80% LVR | 1 yr | 18mth | 2 yrs | 3 yrs | 4 yrs | 5 yrs |
| % | % | % | % | % | % | |
 |
4.39 | 4.95 | 4.49 | 5.10 | 5.25 | 5.35 |
 |
4.39 | 4.49 | 4.49 | 4.75 | 5.15 | 5.25 |
 |
4.39 | 5.09 | 4.39 | 4.49 | 5.40 | 5.50 |
 |
4.39 | 4.49 | 4.85 | 5.25 | 5.35 | |
 |
4.39 | 4.95 | 4.39 | 4.80 | 5.25 | 5.35 |
 |
4.39 | 4.39 | 4.49 | 4.75 | 4.99 | 5.15 |
 |
4.25 | 4.49 | 4.99 | 4.99 | 4.99 | |
 |
4.35 | 4.35 | 4.35 | 4.65 | 5.29 | |
 |
4.35 | 4.69 | 4.29 | 4.79 | 5.35 | 5.35 |
In addition, BNZ has a fixed seven year rate of 5.90%, while TSB Bank offers a fixed ten year rate at 5.75%.
Fixed mortgage rates
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29 Comments
interesting or will banks take advantage of the margins to improve their balance sheets instead of hitting their shareholders, depends where you are looking overseas to source your funds and how long before NZ becomes unattractive
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=115…
I vaguely remember sometime in 2015 the Herald reporting that the ANZ had borrowed from Europe (?) a huge sum at 0.6 % which would presumably have been earmarked for mortgage lending. At the time domestic mortgage borrowing rates were probably in the vicinity of 5 to 6 %. One would presume current bank overseas bank-borrowing rates are still in the same ballpark.
And remember the RBNZ's loudly proclaimed policy of no OCR cuts unless the global financial tectonic plates collide, so the ANZ ( and maybe our other banks) are not too worried about loss on repayment of the loan''s principal. The main banks' economists have lately raised the minimum projected nzd usd rate to a virtually flat 0.63 to 0.65 due to our burgeoning tourist and education industries.
So there is still plenty of skin for the banks to drop mortgage rates further.
And remember that house inflation (in fact any inflation or deflation ) is in reality no longer a concern for the RBNZ or this government;
there
Excuse my ignorance, can someone clear this up for me:
My understanding was that the NZ banks operate fractional reserve banking, which means that they lend out factors more than they hold in reserve. If that is the case, are they borrowing abroad because they have exceeded their ability to "create" money under that mechanism?
This seems like a very precarious position.
in short yes they always have, they need the overseas money to top up tier requirements meaning they can create more debt and not fall outside leverage requirements
https://en.wikipedia.org/wiki/Capital_requirement
You completely misunderstand how currency swaps work. Moving low-rate foreign currency funds back to New Zealand via swaps has the effect of raising the interest rate to local NZ levels. There never has been a free lunch (unless you do not hedge, but that is a risk only amateurs take; banks never take unhedged positions).
I saw some stats today. 45.6% of the petro Sovereign Wealth Funds are invested in the financial sector...hence the weakness in markets so far this year. They are all trying to offload the same assets.I would tend to think that the days of cheap money are just about over.
Bigblue,
Apologies I was being rushed. I was really meaning to say spreads are likely to widen. Interest rates might well be cut globally...again. The big fear I have is a Japanese style global deflationary environment.
QE worked in stabilising markets but has only deferred the problem. The global asset bubble is looking precarious at the moment. Too early to say it is/has burst but there are some worrying signs out there.
Who is going to be buying the assets such as property,equities,bonds as those Sovereign Wealth Funds have to sell down to fund their budget deficits? You are talking some big numbers.
Getting a bit carried away there Steven. The current realities are that term deposit money costs banks ~3+%. Wholesale swap rates cost banks ~2.60%. At most, credit spreads are ~1.5%. There are currently no suggestions AU or NZ banks "can't borrow overseas" and I doubt we are even close to that (although that won't stop apocalyptic guessing by some).
Not carried away but wanting to understand the map of possibilities. I am aware of the present and the "normal". What you have answered with is classic short term thinking, "its OK today why worry".
So can you answer my Q or not?
I am also not looking at NZ especially but the effect of having difficulty in borrowing for another country and teh impact of that globally. Lets consider the BRICS over the last few years, everyone rushed in pilling capital into them, then reversed that which has caused them issues.
As an example everyone says staying floating is the best bet right now. What I am trying to determine is is there any quantifiable risk in doing this rather than fixing for say 12~24months. It may well be there is not but I want to determine that for myself and not listen to platitudes that prove questionable in light of experience/data.
(although that won't stop apocalyptic guessing by some)
Yes, what's up with these ANZ shareholders.- can't they see the error of their ways. How long until a Federal decree banning unpatriotic bank share sales is proposed in Canberra. Or a central bank posing as a SWF decides to scoop up bank stocks with taxpayer underwriting?
un-patriotic? Ah like the EU ban on short selling?
Only we know what is best, you obviously do not, so we'll stop you from harming yourself otherwise we will have to arrest you for treason for attempting to crash the system.
Oh and dont ask hard, penetrating Qs, as we'll consider that treasonous as well not that we'll answer them (honestly) anyway, but you dont want to end in jail do you? or worse.
Yes move along nothing to see here the slaughter house, uh I mean paradise is this way, all is well.
So COCOs, seems that now shareholders dont think they will get bailed out this time, they are bailing out,
"The removal of this implied government guarantee has made the value of those IOUs fall and threatens banks' ability to sell more in the future. That makes banks less stable and, hey presto, here we are with some bank shares down 40% since the beginning of the year."
http://www.bbc.com/news/business-35541694
Seems this is asking the same Q I am. The thing is with all the leverage and fancy instruments of mass destruction just what the possibilities and their risk and impact.
So David are you a journalist seeking enlightement and passing on of knowledge to us the great un-washed or are you just towing the line "dont answer the hard Qs".
In fact could the share price collapse to such a level the bank is seen as an un-acceptable risk and does an OBR?
Is this then is leaving depositors even more exposed? and to bigger losses?
This may indeed not apply to NZ, but we only need to see this sort of event in other countries and we'll feel the cold draft here.
You see I want to learn but it seems getting clear simple answers is rather hard, too hard. From a life experience(s) of being used, burned or attempts to use me as a scape goat, that concerns me when I dont see honesty.
Here is another trading action that reflects a panic attack reaction to current events projected forward The forecasting veracity of this trade is not in doubt given coincident events unfolding around historical spread lows. The price printed 98bps today. I suppose the bad news is a few are making $millions off this trade.
Interesting RNZ interview this morning with UK respected economist discussing the possibility of another GFC only worse and he illustrated Deutche Bank with potential liabilities on Derivatives of 20 Trillion crapos and with capital in the hundreds of Billions even a 5% loss on derivatives would wipe the Bank out and a total loss equates to 3 times Germanys GDP. He pointed out that high frequency trading between Banks/Stockbroker/Funds makes up most of market trades so there is no longer a real market in shares reflective of investors view of worth.Interestingly he pointed out that whilst QE was the political response to buy time to put a permanent fix in place once things calmed down the Pollys saw no point of doing anything. In my view both Politicians and Bankers are responsible for whatever follows and suitable(draconian) punishment is required to ensure the lesson is remembered for decades.
Their debt obligations are $50 trillion to bank assets of $50 billion. You know, 0.1%, so 1000:1 which is potentially massive problem if not handled correctly. Their bond buyback might help their position but surely they must be in breach of the banking regulations in that position? The answer is yes.
If action isn't taken there will be a financial shitstorm in Europe.
There is some $3.6 trillion invested worldwide with negative interest, and the U.S. banking system is flooded with $2 trillion in excess capital; so it’s not surprising that U.S. mortgage rates remained close to historic lows for the entire year.
Fixed-rate 30-year prime mortgages were priced at 3.87 percent at the end of 2014 and 3.96 percent for the week of Dec. 24, 2015, according to Freddie Mac. During the year the low was 3.59 percent in February while the high was 4.09 percent in July. The February rate was not far from the all-time low, 3.31 percent in 2012.
Mortgage interest rates likely to go lower and remain there for years!
Oil likely to stay down for longer.
Economic contraction coupled with warm weather and more high-mileage vehicles have substantially reduced oil demand.
This is a huge problem for energy producers — and a delight for consumers who have watched gas prices tumble throughout much of the year. The result is more disposable spending in an economy where 70 percent of our gross domestic product depends on consumer purchases.
Changing energy production has begun to significantly — and permanently — impact oil pricing.
For instance, we might have as many as 4 million solar-powered homes by 2020, and today almost 10 percent of our energy consumption comes from renewable sources (40 percent in California).
This is good, but we can do much better — Scotland already produces enough energy from wind power to electrify its entire housing stock. Once renewable energy production is in place, there is no incentive to shut it down — the capital expenditure to set it up has been made and the fuel is free.
What’s surprising about renewable energy is that one would logically expect solar and wind installation activity to decline when oil and coal prices are down, but that has not been the case.
According to The Washington Post, “Orders for 2016 solar and wind installations are up sharply from the U.S. to China to the developing economies of Africa and Latin America, all in defiance of stubbornly low prices for coal and natural gas, the industry’s chief competitors.”
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