Inverted wholesale rate curves are still with us, but wholesale rates have been moving rather abruptly recently in unusual volatility.
For example, the two year swap rate fell from 5.41% at the start of the year to 4.70% at the end of last week. 30 basis points of that overall 70 bps drop happened last week alone. But so far this week this rate has risen 17 bps and is likely to rise further Wednesday.
Across the rate curve, there is still a significant inversion in place. About -100 for the 1-5yr spread and -67 bps for the 2-10yr spread. These may be less than recently, but they are still near record levels.
The reason is that financial markets are confused about how to read central bank signals, especially those from the US Federal Reserve. Markets had become convinced the heavy lifting to quash inflation was behind the monetary authorities. But last week's US non-farm payroll strength has them far less certain. And central banks continue to signal that more work needs to be done. The central banks are consistent with their messaging. It is markets who are jumping around with assumptions.
And that has consequences in wholesale interest rate pricing.
And in turn these influence retail mortgage pricing decisions.
Westpac is the latest to tweak rates, and the three they've moved are all down.
Today's shifts don't alter the relative positioning among the main banks. But small continuous tweaking may become a feature for all banks for a while as each attempts to find its sweat spot in a market that is doing fewer transactions as real estate activity remains low.
Banks are left in the zero-sum refinance market to attempt to win market share and meet lending targets.
If you have good financials, banks will compete hard for your business if you shop around. Rate card levels are only the starting point. And the availability of cash and other non-rate incentives are certainly out there. However you need to ask, and you will need to haggle. That is what a broker will do. But in theory at least, if you work competing banks hard you should be able to do better than a broker by going direct because there isn't the broker fee that needs to be paid. Not everyone has the stomach for hard-nosed haggling however.
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 8, 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 | 6.54 | 6.49 | 6.45 | 6.59 | 6.59 | 6.59 |
 |
6.50 | 6.49 | 6.49 | 6.79 | 6.79 | 6.79 | |
 |
6.59 | 6.59 | 6.59 -0.10 |
6.54 -0.25 |
6.59 -0.10 |
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 | 6.49 -0.15 |
6.45 -0.29 |
6.40 -0.44 |
6.40 -0.45 |
6.40 -0.45 |
| Co-operative Bank [*FHB special] | 6.49 +0.10 |
6.39* +0.10 |
6.49 -0.10 |
6.49 -0.10 |
6.59 -0.10 |
6.59 -0.20 |
6.59 -0.20 |
| Heartland Bank | 6.14 | 6.15 | 5.99 | 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 | 6.59 | 6.64 | 6.59 | 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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7 Comments
But small continuous tweaking may become a feature for all banks for a while as each attempts to find its sweat spot in a market that is doing fewer transactions as real estate activity remains low.
Sweet spot or sweat spot? I think the banks hit the sweat spot when they only stress tested at low levels in the face of rising inflation. The mortgage holders are the one sweating.
Now the banks will be looking for a sweet spot. Maybe that's when they say 'sweet!' when someone refinances on a 5 year rate which looks like it will save the mortgagor money in the long run.
Fix for 5 years? Are you mad! There are experts out there suggesting not to touch that term with a barge pole. And so I wouldn't be surprised if just like 18 months ago, when no one really wanted to touch 5 years at 2.99%, because the same experts were pondering rates had further to fall; some even toying with Negative mortgage rates, that not too far from today 6.4% will be looked back on as having been a very good time to fix.
That's why it's the sweet spot for banks (if rates fall between now and 2028). I am not mad. I listened to the experts 2 years ago and look where it got me - half the mortgage coming up for renewal in 4 months and the other half in 9 months. I have 4 months to watch and wait.
That's the rub. Experts are predicting long term fixed rates will fall due to the inverted wholesale rate curve, while at the same time predicting rates will rise across the board when the RBNZ adds 50 base points to the OCR in a fortnight.
The fact is, you will be refinancing at a higher rate in 4 months time than you did 2 years ago. The question will be whether you fix at the lower higher rate for longer, or the higher higher rate for shorter.
Like you say, the next 4 months will give you an indication of which way to go, although with the current rate spreads offered by the main banks you're looking at no more than 0.5% difference between the 6 month rate and the 5 year rate.
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