Mortgage and term deposit rates on slippery slope lower

Personal Finance

ASB cuts most home loan rates again, and matches them with even sharper term deposit rate cuts

19th Jun 20, 9:59am by David Chaston

Mortgage and term deposit rates are on a slippery slope lower

ASB has reduced their 18 month fixed home loan 'special' rate by -40 bps to 2.65%.

At that level, they now match HSBC and the Bank of China for that fixed term and undercut the carded rates of all their main rivals.

ASB has also cut most other fixed rates, except their already-low 2.69% two year fixed rate 'special'.

Their new one year fixed rate 'special' is now also 2.69%, a -16 bps reduction.

Their new three year 'special is now 2.99%, matching BNZ but not as low as Westpac's 2.79% rate for that term.

Their new four year 'special' is now 3.09%. Their new five year rate is 3.19%. Neither of these reductions threaten the lower rates at both BNZ and Westpac who have them each at 2.99%.

Similar reductions have been applied to their equivalent standard rates.

At the same time, ASB has cut its term deposit offers hard, with reductions of -10 bps to up to -30 bps. In fact, their term deposit rate card is now the lowest of any main bank and their highest offer is now just 1.70% for five years. The popular 6 month TD term is now only 1.65% and the one year term is now only 1.60%. No other main bank is lower. And it is probably a sign of things to come from the other main banks. There seems to be no competitive penalty for very low term deposit offer levels. Banks generally have more funds flowing in that they have demand to lend them out.

Since mid May, wholesale swap rates have risen about +10 bps but this has not stopped banks cutting both fixed home loan rates or term deposit rates.

Kiwibank's floating rate cut hasn't been matched by the main banks yet. It may not be until those big banks feel some pain from customers who shift away, attracted by the lower Kiwibank rate. To a large extent that will depend on the collective actions of SMEs. It is a move that is long overdue.

One useful way to make sense of these new lower home loan rates is to use our full-function mortgage calculators.

And if you already have a fixed term mortgage that is not up for renewal at this time, our break fee calculator may help you assess your options.

Here is the updated snapshot of the lowest advertised fixed-term mortgage rates on offer from the key retail banks at this time.

Fixed, below 80% LVR	6 mths	1 yr	18 mth	2 yrs	3 yrs	4 yrs	5 yrs
as at June 19, 2020	%	%	%	%	%	%	%

ANZ	3.65	2.65	3.05	2.75	3.35	4.15	4.25
	3.55	2.69	2.65	2.69	2.99	3.09	3.19
	4.29	2.79	2.79	2.69	2.99	2.99	2.99
	4.29	2.65		2.79	3.25	3.45	3.55
	4.79	2.79	4.25	2.69	2.79	2.99	2.99

Bank of China	3.45	2.55	2.65	2.65	2.75	2.85	2.95
China Construction Bank	4.70	2.80	2.65	2.65	2.80	2.89	2.99
Co-operative Bank	2.79	2.79	2.79	2.79	3.39	3.49	3.59
Heartland Bank		2.89		2.97	3.39
HSBC	2.95	2.60	2.65	2.65	2.80	2.89	2.99
ICBC	2.95	2.58	2.79	2.68	2.79	2.99	3.445
	3.89	2.79	2.89	2.89	3.39	3.79	3.89
[incl Price Match Promise]	3.39	2.65	2.65	2.69	2.79	2.99	2.99

In addition to the above table, BNZ has a unique fixed seven year rate of 5.20%, which is unchanged in this update.

Fixed mortgage rates

Select chart tabs

Source: interest.co.nz

Source:

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51 Comments

by Logicthinker | 19th Jun 20, 10:18am 1592518699

When are they going to cut the Floating Rate

by HeavyG | 19th Jun 20, 11:20am 1592522429

It's all about the fixed rates. Too few people float and if you are haggle a better rate than what's in the window.

by Logicthinker | 19th Jun 20, 1:57pm 1592531836

Then why did Kiwibank drop its rate....I know it would help us, personally, as we are currently constructing a house.

by Jarlaith | 19th Jun 20, 2:42pm 1592534557

Around 20% of montage borrowers are on floating rates.

by HeavyG | 19th Jun 20, 4:21pm 1592540490

Good publicity. The truth will be in the market share and whether there is a rush to kiwibank from the big 4.

by Crazy Horse | 19th Jun 20, 10:21am 1592518911

The great wealth transfer continues ......

by Yvil | 19th Jun 20, 12:01pm 1592524918

Wealth transfer to...?

by redcows1 | 19th Jun 20, 12:54pm 1592528080

Someone else.
By ALL the stats, the 1%.

by redcows1 | 19th Jun 20, 10:23am 1592519000

5 years @ 3% wow.

by lastlegs | 19th Jun 20, 11:20am 1592522437

with ASB we are in to chewing gum territory for the return on a 10k term deposit,so if you have to save then you will need to spend less as the bank cant help you.and those who are using their credit card for everyday transactions in the hope of earning airpoints should remember that the same bank is earning 1.5% in commission from the retailer on every dollar you spend.

by Logicthinker | 19th Jun 20, 1:55pm 1592531726

Not a bad sideline income stream for a major contributor to financial services.
Does it sit right with the Financial Services Authority....???

by realterms | 19th Jun 20, 10:30am 1592519447

It does start to make you wonder how much lower they can possibly go before it's not worth the banks writing mortgages at that level, just from the perspective of administration costs. Some countries appear to have significantly lower rates, but when the numbers are so low you have to be very careful about how the fees come into it, and what the effective rate is.

I imagine there's a bit more room, but definitely we're well into diminishing returns territory if you're thinking about the overall cost change on a P+I mortgage.

by brisket | 19th Jun 20, 10:35am 1592519720

I guess taking on business now could pay off big-time later if interest rates rise again? It doesn't look likely for the near future, but there's gotta be a decent chance that they'll return to 'normal' over the 20-30 year span of a mortgage.

by Andrewj | 19th Jun 20, 10:33am 1592519584

isn't it the economy on the slippery slope, hence the falling interest rate?

by CJ099 | 19th Jun 20, 10:56am 1592521015

Along with the rest of the global economy slides. Even in Oz, the Reserve Bank economists considered urging the Federal Government to shut down the real estate industry, "pausing" sales of established homes to avoid perceptions of a coronavirus-inspired housing market crash.

ABC News article: Reserve Bank considered asking for real estate transaction 'pause' amid property crash fears. https://www.abc.net.au/news/2020-06-18/reserve-bank-considered-asking-f…

by Logicthinker | 19th Jun 20, 2:03pm 1592532233

Interesting article but is it feasible to take such action. What has happened in those european countries where mortgage rates have gone negative and have been in this state for some time.

by Audaxes | 19th Jun 20, 11:51am 1592524286

Indeed - hence lending is restricted to the most wealthy minority with bullet proof incomes and unencumbered collateral in addition to that collateralising the loan contract.

Mortgage advisers say banks are making it tough to get loans approved – and it’s leaving frustrated buyers on the sidelines. Link

The capital deficient seeking leverage to speculate in asset markets cannot expect anything else.

Furthermore, banks are loading up on floating rate government assets via RBNZ LSAP operations, commonly known as QE. The thick end of $17.0bn is a long way from the $60.0bn target. Some claim it will rise to $90.0bn in the not too distant future.

by PatrickW | 19th Jun 20, 10:57am 1592521058

No surprise, if you come to the simple realisation that central banks dirty little secret is to finance governments at the best possible rate. Period.

by realterms | 19th Jun 20, 11:11am 1592521875

Is that a secret?

by HeavyG | 19th Jun 20, 11:19am 1592522349

Or even dirty?

by treadlightly | 19th Jun 20, 4:24pm 1592540681

Except that bonds don't finance the government. All government spending is made by creating new currency just by typing numbers on a computer keyboard at the Reserve Bank. That is how the commercial bank reserves are first created.

by Small Kev | 19th Jun 20, 11:09am 1592521760

New home loan inquiries through the roof due to low rates but unfortunately many don’t qualify. Peoples desire of owning their own property.
Short term fix is the new floating, just ignore floating for now.

by bw | 19th Jun 20, 11:33am 1592523194

Short term fix is fine if you still have your financials in order when it comes to the end of the short fixed term.
Many, on Fixed right now, are going to have to have an uncomfortable conversation with their lenders at maturity time.
I'll suggest again ( partly for this very reason) that 5 years Fixed @ 2.99% covers a multitude of sins - roll-over being the least of them.
(And, yes. Theoretically, Floating should be reviewed by lenders every day ( when each 'fixed' term expires), but it isn't in a way that, say, a 1 Year Fixed is at maturity. Getting borrowers into the bank store once a year is easier than every day!)

by youngdumbandbroke | 19th Jun 20, 11:50am 1592524211

BW - do you think rates will keep falling into next year or will they eventually have to turn??

by alittle | 19th Jun 20, 11:39am 1592523572

Is it the right time to buy house now if finances are in order and any fall of house price in NZ just a myth?

by Independent_Observer | 19th Jun 20, 11:45am 1592523942

Of course...but murphy's law applies to situations like this. Don't buy prices rise again, do buy and our bubble bursts. What kind of relationship do you have with murphy?

by Yvil | 19th Jun 20, 12:09pm 1592525352

IO, it's time to let go of Murphy and look after IO. The market is not going to change because you buy. Make a decision that's right for you and stick with it. Good luck

by Independent_Observer | 19th Jun 20, 1:14pm 1592529275

Good luck. Yes that's what its got to. Hence murphy.

by Yvil | 20th Jun 20, 4:16pm 1592626596

You misunderstood my post, you've analysed the market enough, now make a decision that's right for you. Me wishing you good luck does not mean you have to get lucky, I'm simply wishing you well

by bw | 19th Jun 20, 11:51am 1592524290

Myth you say?

The Reserve Bank of Australia (RBA) considered asking private firms to stop telling Australians about slumping property prices, when the early period of coronavirus panic stoked fears of a housing market crash. The key private sector provider of information about real estate in Australia is global giant CoreLogic (formerly RP Data). Its daily index stopped being published on May 20.

Australia's Central bank may not think so!

by Yvil | 19th Jun 20, 12:01pm 1592524864

Wow, it's becoming cheaper to service a loan in Auckland than it is to pay rent (provided you have the deposit to buy a house)

by taimaiakka0 | 19th Jun 20, 12:30pm 1592526604

Yeah if median is 900000 plus need 180000 deposit to get those lowest interest rate and should be confident that ones job or business will not be affected by current situation

One should remember that as of now one can see lot of liquidity that has bern pumped by government and should be definite that the same liquidity will continue when all this freebies are over.

by HeavyG | 19th Jun 20, 1:52pm 1592531576

FHBs should be looking at houses in the $500k to $600k range in Auckland. After a deposit or a guarantee by the olds would be around $500 week mortgage payment. Same as renting in those areas.

by realterms | 19th Jun 20, 2:04pm 1592532286

600k is all but impossible in most of the city.

by HeavyG | 19th Jun 20, 4:24pm 1592540642

Lots in South and West Auckland. FHBs shouldn't expect to move straight into central or the bays unless they're loaded.

by realterms | 19th Jun 20, 5:22pm 1592544150

Or the entire north shore?

by HeavyG | 19th Jun 20, 6:14pm 1592547273

Albany if you're lucky. Nothing wrong with South or West Auckland though. Beggars can't be choosers and all that.

by Pragmatist | 19th Jun 20, 7:57pm 1592553469

There aren't houses for $600k in Auckland. Maybe a shitty two bedroom unit somewhere, otherwise you are talking south of Papakura and a shit of a commute to anywhere. Not worth it for either.

by HeavyG | 20th Jun 20, 9:52am 1592603520

Search trademe, over 1,000 listing under $600k. Beggars can't be choosers.

by RickStrauss | 22nd Jun 20, 4:51pm 1592801488

Beggars can't be choosers. They could become revolutionaries.

by Independent_Observer | 19th Jun 20, 1:44pm 1592531093

Anyone else think it is crazy that the price of land isn't measured in our CPI? (its excluded...)

I think this could be the core issue of our housing bubble and the reason why our money is flowing into property investment and not productive investment.

by youngdumbandbroke | 19th Jun 20, 1:52pm 1592531534

I think all prices should be included in CPI

by Independent_Observer | 19th Jun 20, 2:12pm 1592532735

In theory it should be controlled against money supply, not prices. You’ll notice that our private debt levels correlate to the price of our housing market but most of that cost is land - and the amount of debt we create is based upon the amount banks can give based on interest settings - that are the result of CPI that doesn’t measure land. Some crazy chicken/egg thinking going on here that has resulted in a severely distorted property market.

by HeavyG | 19th Jun 20, 1:56pm 1592531808

No, CPI measures consumption not capital. You could add CPI and HPI together if it makes you feel better.

by Independent_Observer | 19th Jun 20, 2:27pm 1592533674

In my view then the cost of lending for land shouldn’t have any correlation at all with CPI and the OCR. I.e if we drop OCR because there’s no inflation in consumer items, why then would that change the cost of lending for something that isn’t consumption? Bit it does/banks do. And it’s the main factor why we have a housing bubble.

Land appears to function like bonds. Price is inversely rated to interest rate movements. Central banks are destroying property markets like they have bond markets. No price discovery or if there is it is completely overshadowed by the interest settings influenced by OCR drops.

by HeavyG | 19th Jun 20, 7:17pm 1592551051

OCR cuts do have impact on CPI, see https://www.interest.co.nz/bonds/101245/rbnz-modelling-finds-economys-r…

CPI at 2% is a sign of a growing economy. High house prices can be dealt with supply and demand pressures e.g. cut migration or increase supply. As for destroying the property market, that depends on what a person's circumstances are.

by Independent_Observer | 19th Jun 20, 8:12pm 1592554322

I’m not arguing that OCR influences CPI (or not). And are you talking about inflation or GDP growth? They are different.

Have you noticed that house prices haven’t been rising at the rate of inflation? Nor GDP growth. And given its wages that pays for mortgage debt, which should rise inline with our ability to be productive (measured in GDP) how long do you think this is sustainable?

The biggest factor attributable to house price growth is the value of land and land isn’t measured in the CPI, but more debt can be lent against land each time the OCR is/was dropped to maintain the inflation target. It’s a very dangerous game to play in my view. You’ll know what I’m talking about if we hit stagflation and interest rates go back up. Might be the same for the bond market.

by Independent_Observer | 19th Jun 20, 2:01pm 1592532085

It’s odd that every time we have interest rate drops, property investors think it is great because prices may rise, not realising it’s only happening because the economy has deteriorated further and it’s the economy that has to pay the debt.

by JimboJones | 19th Jun 20, 6:52pm 1592549534

But most times prices do rise...

by Independent_Observer | 19th Jun 20, 6:54pm 1592549676

Yes until interest rates hit zero (or as low as banks can go...which were close to now)

by RickStrauss | 22nd Jun 20, 4:52pm 1592801532

But it's like climate change. It doesn't really matter because one can live up large now and it's only future generations who live with the negatives.