Kiwibank makes another small home loan rate cut, possibly to be followed by another major bank. But the mortgage markets now await the RBNZ's OCR review, to be followed by a massive refixing surge

Home loan rates are still in their small gentle slide phase.

The next main bank to make a small change to their rate card to stay connected to the market leaders is Kiwibank.

The cuts they have announced today (Wednesday) are minor and just tactical positioning. They are not really moving the overall rate curve much.

Kiwibank have joined others by adopting a 5.29% two year fixed rate. And they have cut -10 bps from their three year carded rate. And that is it. The focus on the two and three year part of the rate card essentially means this is a minor change in the overall market.

It would not be a surprise to see ANZ also move to a 5.29% two year rate soon. But other than that they may be the last of the changes before the next RBNZ rate review on Wednesday, February 19, 2025.

Wholesale markets have priced in a full -50 bps rate cut for that review, something the RBNZ itself seems to have well signaled. That will bring down floating rates by a similar amount, and perhaps take the top off the popular 6 month rate.

But it is unlikely to move other fixed rates much. Other wholesale market events will be needed to do that.

And an additional prerequisite for lower fixed home loan rate offers is an attack on the level of term deposit rates. Without growing loan demand, banks will feel that the only way they can afford lower mortgage rates is by paying less to savers.

Yes, the wholesale markets provide some opportunity to source lower cost money, but most of the bank funding comes from depositor balances. And savers are essentially shifting their spare cash into term deposits. In fact, 55% of all bank deposits are now from households, and that is the highest level since this monthly tracking started in 2016. And of those household deposits, 55% are in term deposits, also near its high water level. So term deposit savings are a key component of bank funding, even if they also have other sources.

The wholesale market is another and swap rates suggest that one year funding can be raised at about 3.5% and two years for about 3.4%. Current carded one year rates of about 5.55% and two year rates of 5.30% give a margin of about 2%. But TD rates of about 4.8% only give a margin of about 80 bps. Spread over all household deposits where transaction balances incur no interest costs, and savings balances much lower interest costs, we estimate the weighted average cost of funds from all depositors is about 2.7%, but rising as the weight of TDs rises. This is lower than wholesale funding, but it does come with higher admin costs (of maintaining thousands of small balances).

Banks can also borrow in the debt market, and do so to manage their term risk. But the latest transactions suggest a cost of about 5% for the largest banks. Such money doesn't give them any ability to direct it to the mortgage market for 'lower rates'.

It is hard to see banks willingly cutting rates much from here unless they can force down what they pay depositors. Having noted that, if loan demand stays weak, don't count that strategy out.

Wholesale rates eased slightly last week in line with global moves, but these shifts are not major and unlikely to be the basis of retail carded rate reductions. 

A feature of the current home loan market is that the difference of carded rates from actual offers has nearly vanished.

The reader-reported mortgage rates are fluid but may be less frequent now, so please record them if you have them. We need you to record them in the comment section below, which helps us stay on top of this fast-changing corner of the home loan rates market.

And still negotiate. How flexible they may be will depend on the strength of your financials.

One indication of how competitive the current mortgage market is came recently in RBNZ-released data for December, where a near-record level of bank switching in home loan activity was revealed. It seems that banks are much more vulnerable to customer migration, and rate pressures (and a slow reaction to that) can have a sharp effect. We won't know who are the winners and who are the losers from this elevated switching until the next release of the RBNZ Dashboard mid February.

And there is a huge wave of refixing on about $200 billion worth of mortgages due to happen by the middle of the year.

One useful way to make sense of the changed home loan rates is to use our full-function mortgage calculator which is below.

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. Break fees will be minimal in a rising market. But they become important in a falling market, like now.

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 5, 2025	%	%	%	%	%	%	%
ANZ	5.99	5.57	5.39	5.44	5.59	6.19	6.19
current reader-reported rates
	5.99	5.54	5.34	5.29	5.59	5.79	5.79
current reader-reported rates
	5.99	5.55	5.39	5.29	5.59	5.69	5.79
current reader-reported rates
	5.99	5.55		5.29 -0.16	5.59 -0.10	5.79	5.89
current reader-reported rates
	5.99	5.59	5.39	5.39	5.59	5.59	5.59
current reader-reported rates
Bank of China	5.95	5.55	5.35	5.39	5.49	5.49	5.49
China Construction Bank	5.99	5.57	5.39	5.44	5.59	6.40	6.40
Co-operative Bank (*=FHB only)	5.99	5.49*	5.49	5.49	5.69	5.79	5.79
Heartland Bank		5.49	5.39	5.39	5.45
ICBC	5.99	5.55	5.39	5.59	5.59	5.59	5.59
	6.09	5.79	5.49	5.49	5.59	5.79	5.79
	5.99	5.59	5.59	5.45	5.59	5.79	5.89