Fix short or go long? NZ banks split on mortgage rates ahead of July OCR
Falling wholesale rates have pushed NZ's major banks to reprice fixed home loans this week — in different directions. The Reserve Bank's 8 July OCR decision could reverse the move before it beds in.
The sequence began the previous week, when Westpac cut its three, four, and five-year rates by between 20 and 30 basis points, citing falling wholesale funding costs driven by positive geopolitical developments — a move that increased competitive pressure on the banks that had been holding or lifting longer-term rates.
ANZ, NZ's largest mortgage lender, had raised a range of fixed rates in early June without any rivals following. It reversed course on 23 June, cutting its one-year rate by 14 basis points to 4.65% and trimming its two-year and three-year rates by 20 basis points each, to 5.29% and 5.49% respectively, interest.co.nz reported.
"Global events continue to influence wholesale rates, which have come off a little as the US enters peace talks with Iran," said ANZ managing director for personal banking Grant Knuckey.
BNZ takes a split approach
BNZ followed the next day with a more nuanced set of moves. The most notable change was at the longer end — the five-year rate fell 30 basis points to 5.49% and the three-year rate dropped 10 basis points to 5.29% — while shorter terms moved up. The six-month rate rose 20 basis points to 4.69%, and both the one-year and 18-month rates lifted 14 basis points to 4.79% and 5.09% respectively, according to interest.co.nz.
The net effect is a market where short and long rates are sending different signals. At the shorter end, BNZ, ANZ, and Westpac now all sit at 4.69% for six-month terms. At the longer end, Westpac and BNZ are among the most competitive for three-to-five-year terms, with ANZ's longer-term rates still among the highest at 6.39% and 6.49% for four and five years respectively.
What it means for client strategy
The practical question for clients is how long the current rate settings will hold. The Reserve Bank held the OCR at 2.25% at its May meeting but signalled rate hikes were "very likely" ahead, according to 1News. The next decision falls on 8 July — and if the Reserve Bank moves as signalled, the market conditions that prompted this week's cuts could quickly reverse.
Those who locked in longer terms when rates were higher may find the gap between their rate and the current market is beginning to close at the three-to-five-year end. Either way, the July OCR decision makes this a timely conversation to have now rather than after.
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