BNZ and Westpac will not be cutting mortgage rates following the Reserve Bank of New Zealand reducing the Official Cash Rate to 1.75%.
As of 4pm Thursday, following the 9am OCR cut, BNZ was the only bank to have publicly said anything. Just after 4pm, however, Westpac issued a statement saying it also would not be cutting mortgage rates.
The deafening silence from the other banks continues.
BNZ's acting director of retail banking and marketing, David Bullock, said:
“We are not making any changes to interest rates today and it’s a good time to remind people that interest rates aren’t directly or solely linked to the OCR.
"Banks get their ability to lend from a few sources, most of which are getting more expensive and putting pressure on margins.
"One source is local deposits, and at the moment there are more people wanting home loans than there are people saving. So to encourage and attract more deposits (people’s savings and terms deposits) we need to pay a sharper return to savers.
"And we still need overseas funds to fill the gap – and the cost of these remains volatile.
"All those factors considered, it’s still important to remember that today’s interest rates for home loans are still some of the sharpest in decades and still a good time for people with home loans to look at ways to pay off their loans faster.”
BNZ's statement made no mention of increasing deposit rates, and nor did Westpac's.
Simon Power, the consumer banking and wealth general manager at Westpac, said there would be no change to Westpac's mortgage rates following the OCR cut.
"On-going rises in the cost of offshore funding provide no opportunity to lower home loan rates at this time," Power said.
"The consistent low flow of local deposits was forcing banks to look offshore for funds. The OCR is just one factor in assessing interest rates. Its importance is diminished when banks need to use offshore funds to cover the gap left by a lack of local deposits.
"In this situation and in a period of global uncertainty, a number of factors become more influential than the OCR. These include the increased cost and lack of supply in the local deposit market, exchange rate risk and the increased capital requirements for investors.
"With historic low interest rates NZ home owners are taking the opportunity to pay down mortgages faster and reduce debt levels. Many home loan customers have done that and are more than three months ahead on repayments. This deleveraging is prudent and a positive step for the economy and New Zealanders."
Wheeler in harmony
Speaking at a press conference, RBNZ Governor Graeme Wheeler echoed BNZ and Westpac's sentiments, saying banks are looking for funding offshore as lending growth exceeds deposit growth.
Asked how he believed banks would respond, he said it was up to them.
Wheeler pointed out we are starting to see upward pressure on deposit rates and some increases in mortgage rates. He said there may be some adjustments to floating rates too.
He noted the RBNZ had signalled there would be a high probability of it cutting the OCR today, so banks had built this into their rate structure.
Canstar believes banks will be more proactive hiking mortgage than deposit rates.
Its general manager Jose George said: “Recent increases in some deposit rates have not been sustained and I think rate increases may well remain sporadic as banks navigate the tricky global financial waters ahead.”
As for mortgage rates, George maintains “we will not be reading anymore headlines about ‘record low rates’ for quite some time.
“With the popularity of fixed rate mortgages in New Zealand this is not going to be an immediate concern for many homeowners but once again we will see first time buyers disproportionally affected as the cost of borrowing, and therefore the cost of getting on the housing ladder, increases.”
See all banks' carded, or advertised, home loan rates here.
| Floating | Prior rate | New rate | Change | effective from |
| % | % | % | for existing clients | |
 |
5.59 | |||
 |
5.55 | |||
 |
5.64 | 5.64 | -0.00 | 10-Nov-2016 |
 |
5.25 | |||
 |
5.65 | 5.65 | -0.00 | 10-Nov-2016 |
 |
5.45 | |||
 |
5.59 | |||
| ICBC | 5.60 | |||
 |
5.54 | |||
 |
5.54 |
Mortgage rates
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41 Comments
Given the previous comments the bank announcement is unsurprising. We've officially crossed into the territory where RBNZ is mostly ineffective with the use of the OCR. Other tools they can use are more relevant now.
The only time we'll see a difference is when a bank is prepared to fight for market share.
I don't understand why this is so hard for people to understand? Unless, you are all utterly addicted to mortgage debt and this news is akin to your dealer telling you that the cost of your drugs
has gone up?
Mortgage debt is dead money. It is not productive debt. Banks need to refocus away from housing debt because it is such an obvious and dangerous bubble. RBNZ has been very open about the fact that they would only decrease the OCR if they thought it wouldn't pose further impetus to the housing bubble.
What would be productive and helpful for the NZ economy would be for banks to lend towards businesses and infrastructure within NZ, which will increase pressure on wages. NZ wages are shockingly low. While you are busy swapping over priced houses and getting yourself in mountains of debt, the banks will not have the capital to lend to business and what with the high levels of immigration, there will be continued DOWNWARD pressure on wages. Which will in turn, suppress inflation.
Has someone recently got a mortgage? I've just purchased a house and would like to know what *deals* are around that others have got. Not just 'take 50bp off the carded rate" actual rates other interest.co.nz members have received recently? BTW - no problems with LVR (purchased in nelson and mortgage free on a house in auckland).
Stuff the Banks , its called profiteering , they have had a good 7 years and finally the tide is turning, so they are trying to maintain their margins , so they wont pass the cuts through .
Let them experience a credit squeeze until they offer more attractive deposit rates.
Simon powers quotes "there are a number of factors which are more influential than the OCR"
It will be interesting to see what increase the banks place on mortgages once the OCR goes up?
Aren't the big 4 here being investigated for daily swap manipulation ?
The banks just want bigger profits for shareholders and while we have one of the highest OCR in the OECD this won't help our economy!
Filthy bankers pocketing higher and higher margins and more than a billion each profit on average over the last 12 months. A mass move to Kiwi Bank may make the Ozzie banks get their act together and pass on the cuts.
Floating rates should only be 4% and fixed well under 4% - greedy bas?ds!
There is no "rate cut" to pass on kiwimm, try to understand how it works. Effectively the RBNZ OCR cut is attempting to guide the market to cut their lending rates and the way banks can do that, and maintain their margins, is to do so by combining that with a cut to deposit rates. But they have no chance of that as depositors are fleeing from after tax deposit rates of 2% and the banks can't fund any further borrowing without raising depo rates to try to attract them back. They aren't doing that much yet, but they will, instead since they don't want to take a hit to margins naturally enough like any business, they are limiting what further lending they're doing to some segments of the market, and commercial property is one at the top of that list at the moment.
Furthermore they are raising margins on their lending business across both retail and commercial to improve deposit rates, and will continue to do so until they are satisfactorily funded in terms of the prudential requirements of APRA and the RBNZ. Facts are, rates got too low and attracted more borrowing than depositors are prepared to fund, and there is a big readjustment to that going on, not just here but soon to be in the US which dictates rates globally.
Kiwibank certainly has the option to cut its lending rates if its feeling well funded (most of its liabilities/deposits are cheaper retail deposits since its a minnow lender and can still fund enough from that source), but certainly it can't if it has to start funding off the much more expense wholesale markets as it will have to at some point soon if it plans to grow. Of course it could do so, take a hit to its margins, and deprive the shareholders (tax payers, and pension funds/super scheme) an acceptable return on investment - I'm sure Adrian Orr would love to keep supporting them if that was the case?....socialism is a successful tactic right, worked great for europe?
The real issue is that NZers need to stop their borrow/spend obsession. If borrowers collectively decided to de-leverage, mortgage rates would come down overnight. It wouldn't be a good scenario for savers of course, but borrowers need to realise they can't have it both ways by borrowing up large and expecting rate cuts at the same time.
Why are we paying a full % higher than in the US for mortgage rates? We are paying 4% to their 3%. You could argue that our banking system is safer than theirs as people cant just walk away like they can in the US. I think were being ripped off by these Australian banks that we guarantee their security. Theyve been investigating the banks in Oz why dont we have an investigation to stop this trade. Lets figure out a way to keep profits here.
You misunderstand how banks, money, and funding work. Banks would be irresponsible if they did not hedge foreign currency funding. The simple fact is, a 1% or 2% per year or whatever interest rate difference could be wiped out in a few hours in the currency markets. They absolutely must hedge.
And the way hedging works, you transfer a USD interest rate into NZD interest rates via money market swaps. There is no free lunch.
They go overseas for access to funds, and easier duration matching. They don't go overseas for lower interest rates, just because it is not possible in a responsible way.
Would you borrow in USD and lend in NZD in an unhedged was? You would be wiped out in hours. Banks won't do that either.
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