Interest rates: Who is king of the cut?

With the official cash rate falling for the first time since February 2020, New Zealand’s major banks have been slashing their mortgage rates in a bid to attract more customers and remain competitive in a challenging market.

A newly developed tool by property platform OneRoof, in conjunction with Ed McKnight (pictured above left) from The Property Academy Podcast run by Opes Partners, aims to provide clarity amid the noise of rate changes.

“We’ve developed a new tool that keeps track of all this discounting,” said McKnight during the recent episode of the podcast. “Every time a bank cuts their interest rate, a new article gets written, but it’s hard to separate the noise and understand what’s actually going on.”

The tool, aptly named the "Cut Counter," is designed to address this challenge by providing a comprehensive overview of all interest rate cuts across different banks.

Going live on both the OneRoof and Opes Partners websites, it tracks every rate change daily and shows every time each bank has cut their mortgage interest rates since the start of 2024.

Who is the king of the cut?

So, which bank is the king of the cut in New Zealand?

According to the Cut Counter, ASB currently holds the crown for the most rate cuts, having slashed their interest rates 42 times since the beginning of 2024.

“In the last two weeks alone, ASB has made 15 cuts,” the podcast co-host Andrew Nichol noted. “And just to clarify, if ASB announces a cut on both their one-year and two-year rates, it counts as two separate cuts.”

While the number of cuts is an interesting metric, it doesn’t necessarily mean that ASB has the best rates.

“The number of cuts doesn’t necessarily equate to the best rate,” McKnight pointed out. “For example, TSB has made only 24 cuts in total, seven of which were in the last 14 days, but they currently offer some of the sharpest pricing out there.”

The tool is not just about counting the cuts; it’s also about understanding their impact.

A bank could make a significant cut in one go, or it could make multiple smaller cuts. For instance, a bank might reduce its rate by 1% in a single cut, which could be more impactful than making 10 cuts of 0.1% each.

The competitive landscape of rate cuts

Interest rate cuts have been happening more frequently this year due to the current market conditions, with banks vying for a shrinking pool of borrowers.

However, some commentators, such as BNZ’s chief economist Mike Jones, say that while the latest round of mortgage rate declines won't trigger an immediate surge in the housing market, they are essential in preventing a deeper correction.

“We’re seeing more frequent cuts because banks are competing for market share in a lower transaction environment,” McKnight said. “They’re trying to be as competitive as possible, especially with spring home loan campaigns coming up.”

The data shows that shorter-term rates have experienced the most cuts.

“Since the start of the year, the one-year rate across all the major banks has been cut 27 times, and the two-year rate 25 times,” Nichol said. “These shorter terms are often where banks make the most aggressive cuts.”

However, it’s important to look beyond just the number of cuts and consider the depth of these cuts.

“ANZ and ASB, for example, have cut their 18-month rate from 7.15% to 5.99% since the start of 2024—a massive 1.16% drop,” Nichols said. “For someone with a $500,000 mortgage on a 30-year term, that’s a savings of $88 a week.”

McKnight added, “that’s four times the National’s tax cut.”

A shifting leaderboard: BNZ takes over

In a twist during the podcast recording, McKnight discovered that BNZ had cut their rates even further, bringing their total to 40 cuts for the year.

“Just within recording this podcast, we’ve seen more cuts come in,” he said. “So, there could be a new king in town.”

BNZ has trimmed 6.97% off their interest rates since the start of the year, making them the new leader.

It’s a dynamic leaderboard where each cut can shift the rankings.

“It was Westpac initially, then ASB, and now BNZ,” Nichol said. “And it’s important to recognise that some banks have an advantage. If a bank started the year with higher rates, they might have more room to cut.”

The bigger picture: Interest rate cuts and market impact

While the Cut Counter provides a fascinating look at which bank is the most aggressive in cutting rates, the bigger picture is about the overall scale of these reductions.

“People tend to look back at what’s already happened and take it for granted,” McKnight said. “But imagine if the rates dropped another 1.15%. That would be massive.”

As the podcast concluded, McKnight reminded listeners that these ongoing cuts are likely to be a significant story for the remainder of 2024.

“Lower interest rates will help the property market, and it’s something to keep an eye on if you’re looking to refinance or enter the market,” he said.

The Cut Counter is set to be a valuable tool for anyone wanting to stay informed about mortgage rates and understand the implications of these rate cuts beyond the headlines.

For more details and the latest updates, you can visit the OneRoof or Opes Partners website and access the Cut Counter tool directly.