Banks start cutting home loan rates

Friday 25th July 2008

The Reserve Bank's decision yesterday to cut its official cash rate by 25 basis points to 8.00% has triggered some falls in home loan rates, but not where you would expect.

Normally floating rates closely mirror the OCR. However, no lender has yet cut its variable rate, rather banks are easing their two-year fixed rates and a couple of banks have cut their one year rates.

ASB was the first bank to respond dropping its two-year rate, yesterday, to 8.95%. It also said it was reviewing its other mortgage rates. Following closely behind were its related companies, Bank Direct and Sovereign, plus TSB has gone slightly lower, pitching its two-year rate at 8.88%.

Westpac has said it will follow suit on Monday and will take its two-year rate to 8.95%.

This evening ANZ and National Bank broke ranks with their competitors and announced they would cut one year fixed rates as well as two year rates.

Two year rates are coming down 25 basis points to 8.95% and their one-year rates are down 20 points to 9.20%.

There is some uncertainty around where rates will go in the short to medium term. Reserve Bank governor Alan Bollard has indicated he will make cuts to the OCR at each of the remaining three reviews this year.

However, the main roadblock to rates continuing their decline is the currency. Dr Bollard said that rates would continue to fall, provided that there is not an "excessive exchange rate depreciation".

How long the OCR, and consequently home loan rates will go, is unknown at this stage.

One view, from the Bank of New Zealand, is that the two-year fixed housing rate could fall below 8.75% by late 2008, and hit the five year average of 7.80% late in 2009.

Economists have some different views on the outlook. They range from the Reserve Bank making some cuts of 50 basis points at a time, right through to the bank reversing the falls early next year. This means there is still a lot of uncertainty about where things are heading and borrowers will need to get good advice and be fully-informed before making decisions.

In other rate news this week a number of non-bank lenders shifted rates before the OCR announcement AXA made a raft of changes reducing its six-months by 10 points, one-year by 45 points, two-year by 40 points, three-year by 25 points, four-year by 15 points and their five-year rate by 10 points.

Also this past week saw Global Home Loans and GEM Home Loans reduce their three-year rate by 10 points and General Finance lowering its four-year rate by 29 points.

Readers can track and compare home loan rates at www.goodreturns.co.nz

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