Short-term rates fall below rivals as banks battle for market share
Kiwibank has joined the wave of mortgage rate cuts sweeping through New Zealand’s banking sector, reducing several of its fixed home loan rates as lender competition ramps up amid subdued economic conditions and a lower official cash rate (OCR).
The bank’s new one-year special fixed rate sits at 4.89%, while its two-year rate is down to 4.95%. Kiwibank also cut its three- and six-month rates to 5.29%, making its short-term offers some of the sharpest on the market.
“They have stayed concentrated on short six- and 12-month rates as their most competitive offer... Both these new carded rates are lower than all their big Aussie bank rivals,” interest.co.nz reported.
Kiwibank also lowered term deposit rates by 10 to 15 basis points, leaving few offers above 4% except for very long terms.
Competitive forces dominate mortgage pricing
According to David Cunningham, chief executive of mortgage advisory firm Squirrel, the latest rate moves have less to do with OCR expectations and more to do with banks vying for borrowers, RNZ reported.
“The main retail interest rate movements now would be driven by competition between the banks,” Cunningham said.
“Maybe we’ll see 4.75% one- or two-year rates but a break towards 4.5% would need another OCR cut and signals of more to come. That would be three to six months away, if it did happen.
“Long story short, fixed rates are likely to hover around existing levels for a wee while.”
RBNZ path unclear as committee splits
New Zealand’s OCR has fallen from a peak of 5.5% to 3.25%, prompting rate cuts across the market. However, a more cautious tone in the latest policy update – including dissent within the Monetary Policy Committee – has injected some uncertainty.
“That prompted swap rates to pick up a bit, although they have started to drift down again since,” RNZ said.
ANZ and ASB also move
Kiwibank’s move follows similar cuts from major rivals ANZ and ASB last week.
ANZ trimmed its 18-month fixed rate to 4.89%, and dropped its six-month offer to 5.29%.
ASB, meanwhile, announced its seventh rate cut of the year, lowering its six-month rate to 5.45%, one-year to 4.95%, 18-month to 4.89%, two-year to 4.95%, and three-year to 5.15%.
Margins tighten as growth stalls
The rate cuts reflect a broader tightening of profit margins as banks absorb higher funding costs while the wider economy struggles for momentum.
“This is all part of a general slow but relentless tightening of margins in the mortgage market, on competitive pressures,” interest.co.nz said. “Those competitive pressures come as the background economy struggles to achieve any expansion momentum.”
