Mortgage rates eye downward pressures

Personal Finance / analysis

BNZ returns with more home loan rate reductions, a day after their first set of changes. These come as wholesale markets shift their bets to lower levels, mainly on international influences

3rd Feb 23, 9:43am by David Chaston

Source: 123rf.com Copyright: eamesbot

Home loan rate changes are extending, even among banks that have just adjusted recently.

BNZ changed its rates Thursday, and have changed them again today (Friday), after their main rival ANZ also changed all its rates.

BNZ has now extended its cuts all the way out to its five year fixed rate offer.

As a result, among the major banks, BNZ now has the lowest rate offers for all fixed terms of 18 months and longer, matched on some, and on their own for 18 months and 3 years fixed.

Also changing their mortgage rate card has been SBS Bank, who announced small rate increases for all terms out to two years fixed.

Challenger banks offer lower home loan rates than almost any main bank, the notable exceptions being ASB and Westpac's five year rates.

We are likely in for a new period of rate reductions, if the wholesale rate track is any indication. Swap rates fell sharply yesterday and are expected to move down again today. If they stay down, that could open the door to more cuts.

But banks will be taking mood temperature in the run up to the next RBNZ rate review due on February 22. The wholesale rate falls are being driven by international pressures on the basis that the US Fed and ECB are nearing the end of their rate hiking cycle and the pressure is easing from those. Market guessing on whether a recession is coming, and if it does, how hard the 'landing' will be, is also part of this new rate positioning.

But those international shifts essentially rely on falling inflationary trends. It isn't clear New Zealand is getting the same trends to the same extent, even if there are some tentative signals. The question is whether the RBNZ thinks those lower signals will embed here. Around the world, tight labour markets are making the assessment harder in this business cycle. And because this is election year and policy changes by the RBNZ close to an election are usually off the table, we might see the RBNZ push ahead with another chunky rise early in the year so they don't have regrets about the OCR level as October 14 gets closer.

Looking over their shoulders will be term deposit savers. If they think rates may start falling, some may be tempted to lock in 'longer' TD terms now.

BNZ hasn't changed its term deposit rates yet, but others have (including SBS Bank and TSB). Almost all TD rate changes are still increases.

One useful way to make sense of the changed home loan rates is to use our full-function mortgage calculator which is also below. (Term deposit rates can be assessed using this calculator).

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. But break fees should be minimal in a rising market.

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

Fixed, below 80% LVR	6 mths	1 yr	18 mth	2 yrs	3 yrs	4 yrs	5 yrs
as at February 3, 2023	%	%	%	%	%	%	%

ANZ	6.60	6.54	6.49	6.45	6.59	7.19	7.09
	6.84	6.84	6.79	6.79	6.69	6.59	6.49
	6.54 +0.05	6.54 +0.05	6.45 -0.06	6.49 -0.10	6.59 -0.10	6.59 -0.20	6.59 -0.20
	6.50	6.49		6.49	6.79	6.79	6.79
	6.59	6.59	6.69	6.79	6.69	6.59	6.49

Bank of China		6.15	6.25	6.35	6.35	6.55	6.65
China Construction Bank	6.60	6.54	6.64	6.74	6.84	6.85	6.85
Co-operative Bank [*FHB special]	6.39	6.29*	6.39	6.59	6.69	6.79	6.79
Heartland Bank		6.14 +0.25	6.15 +0.16	6.05	5.95
HSBC	6.44	6.44	6.59	6.69	6.79	7.29	7.39
ICBC	6.29	6.25	6.35	6.45	6.65	6.85	6.85
	6.59 +0.20	6.59 +0.20	6.49 +0.15	6.59 +0.05	6.59	6.65	6.69
	6.29	6.29	6.39	6.49	6.65	6.75	6.79

Fixed mortgage rates

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Source: interest.co.nz

Source:

Daily swap rates

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Source: NZFMA

Comprehensive Mortgage Calculator

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28 Comments

by nktokyo | 3rd Feb 23, 9:54am 1675371277

Called it.

The multiple of interest rate increases in most developed countries was very large, and in many areas, from a base where they had sat for several years.

A pullback was guaranteed. Given how quickly rates shot up, I'm surprised anyone expected a slow measured retreat.

by rjn1 | 3rd Feb 23, 10:19am 1675372762

Maybe a little too early to call it, but I agree with your overall sentiment.

by Carlos67 | 3rd Feb 23, 10:42am 1675374153

Its not locked in until the 22nd Feb. Three weeks until the RBNZ signals which way to go.

by rjn1 | 3rd Feb 23, 11:59am 1675378773

There's really only so much they can do, and only so much they need to. The market, as always, is in the driver's seat.

USD weakness is a huge driver, we're now at 65 c vs 55 not so long ago. We'll likely be back above 70 before too long. A strong NZD covers all manner of inflationary sins.

The other thing to keep in mind is the psychology of loss, i.e. with respect to house prices, a given decline in the value of ones house is disproportionately more upsetting than the positive feeling caused by a comparable gain. I.e. the disinflationary dynamic attributable to wealth affect is assymetric, skewed to the downside.

by J.C. | 3rd Feb 23, 12:37pm 1675381026

Beautifully delivered. RJN. I sense we connect and share a similar understanding. Unfashionable ideas that get little resonance at the BBQ or around the water cooler.

by linklater01 | 4th Feb 23, 2:28pm 1675474116

JC,

Otherwise known as loss aversion and I don't think it is at all unfashionable, but most people have better things to talk about round the BBQ.

Study after study has confirmed that people hate losses much more than they value gains, over twice as much in fact. Richard Thaler wrote this in his book on Behavioural Economics-Misbehaving; "The fact that a loss hurts more than an equivalent gain gives pleasure is called loss aversion. It has become the single most powerful tool in the behavioural economist's arsenal".

by tomyam | 3rd Feb 23, 2:15pm 1675386944

I hope NZD to go 70c sooner than later. Bought 3**k worth of NZD at 58c. but I now need USD and I am also greedy :P

by rjn1 | 3rd Feb 23, 3:00pm 1675389644

If I've learned nothing else from my own greed, always leave some on the table for the next guy.

by Pragmatist | 3rd Feb 23, 12:44pm 1675381468

OCR only directly affects the very short terms, swaps rule the longer terms.

It could be rather expensive to refix for a year or two for the rest of the year, but still work out cheaper in the long run than taking a slightly lower rate longer fix only to see rates plummet late this year, early next year.

by Carlos67 | 3rd Feb 23, 2:09pm 1675386576

People had the best part of a year to refix at lower rates. If you were paying attention on here, the writing was on the wall from Feb 2022 onwards. I cannot understand the touted 60% of mortgage renewals last year and there is still 50% renewals this year? That is a lot of people on very short term fixes that should have gone at least 3 years. The number of people who should be needing to refix this year should have been tiny, The RBNZ were signalling rises all of last year.

by Pragmatist | 3rd Feb 23, 2:21pm 1675387316

Yep, which is why we broke and refixed for 2/3/4 years mid 2022. Its hard to predict exactly when the rates will peak and start dropping, but i'm reasonable confident it'll be in that window, and if I'm wrong and the peak isn't till 2026, at least we will ease into new rates in manageable chunks instead of one massive kick in the whatzits.

by gnx | 3rd Feb 23, 1:11pm 1675383079

So with a likely increase in the ocr on the 23rd then this is all bullshit and jellybeans to keep the mob calm?

by Carlos67 | 3rd Feb 23, 2:13pm 1675386798

Thats why I think it will only be 25bps, it signals the end of the rate rises and it will keep the market steady without a hard landing.

by Pragmatist | 3rd Feb 23, 2:15pm 1675386905

No, they are simply responding to the market, Swaps have been declining at the longer end quite quickly, they are simply passing that through. As they will when swaps increase at some point in the future.

Banks are simply arbitragers.

They "buy" money from various sources ( credit swaps, customer deposits, etc), add margins for overhead, risk and profit, then "sell" that to us punters in the mortgage markets.

by Juzz | 4th Feb 23, 12:32am 1675423963

Agreed, if anything these minor reductions may give the rbnz reason to hike further than they would have

by bw | 3rd Feb 23, 10:46am 1675374414

Comes in tandem with a rebranding exercise?

I see Property Investors are now calling themselves Property Businessmen/women. Underneath the hood, just as with interest rates, nothing has changed. The massive distortions we have in our property market are still there. The World may be in an entirely different economic space to what it was the last time we went through this exercise 50 years ago, but people are just the same, and will react just the same.

by huttman | 3rd Feb 23, 11:00am 1675375236

if nothing has changed, then it's not massive distortions, it's normality.

by huttman | 3rd Feb 23, 10:59am 1675375142

One hidden logic of the bank rates drops, I think is banks are in fight to keep existing customers. With dropping house prices, and dropping new lendings, whoever keeps their customers, keeps market shares too.

I think we are in a "watch what's next" phase now, as interest rates can go both ways still.

by bw | 3rd Feb 23, 2:00pm 1675386002

ANZ CEO tips more rate rises. ANZ Bank chief executive Shayne Elliott expects there will be more interest rate rises in 2023 than people expect (AFR)

by rjn1 | 3rd Feb 23, 2:45pm 1675388740

In Australia...

by nguturoa | 3rd Feb 23, 2:23pm 1675387421

Great.. So we will remain a market with average house prices above a million?

And then more immigrants to keep your average wages low. Modern day slavery to feed the rich keeps on going in NZ society.

by redcows1 | 3rd Feb 23, 2:51pm 1675389084

Nailed it.

by rjn1 | 3rd Feb 23, 2:56pm 1675389361

Maybe, but a million ain't what it used to be. House prices will probably continue to drop, at least in real terms, until they are more sustainable. I'd expect nominal prices to flatten out from about here (assuming interest rates have peaked) while wages continue to catch up over the coming years.

The fact that housing has been shown not to be a one-way bet (shock horror) should cap any major gains in the next decade or so, until memory fades, as it always does. Recent policy changes, if sustained, should also have a persistent, dampening effect. Hopefully we can keep our political s@#$ together in the longer run to prevent the rediculous market dynamics we've just lived through from resuming.

by huttman | 3rd Feb 23, 3:18pm 1675390724

You are assuming other investment categories performs better than property market. but this time, all investment category suffers loss which doesn't make property market particularly worse than others.

for inexperienced investors and first home buyers, it might be very scary experience. for me, it's not nice but all is expected.

by kwbrn | 3rd Feb 23, 3:43pm 1675392181

Do we want people to invest in the property market as it seems that has got us to where we are.

by nktokyo | 3rd Feb 23, 6:36pm 1675402584

It's 10% less than it used to be a little over a year ago.

by Juzz | 4th Feb 23, 12:37am 1675424277

Even if rates just hold near where they are now it will still impact severely those in distress. Our bank has given us pre-approval but only for a much smaller amount than we can afford, I guess they have some reasoning behind that.

by kermit42 | 8th Feb 23, 8:23am 1675797793

My three year fixed rate expires in June with ASB. Heartland's 1 and 2 year rates seem remarkably cheap. Are Heartland more conservative in how much they lend? Does anyone else have positive or negative experiences applying to Heartland?