Challenger banks cut rates, restoring benefits
There is now less than a week until the Reserve Bank (RBNZ) revises its official exchange rate (OCR), and almost certainly, raised from 50 basis points to 3%. By the end of 2022, markets are pricing OCR at around 4.0%.
But fixed interest rates are still descent. Other institutions cut rates on Thursday, and these add to a series of rate cuts over the past few days.
Some of these changes are just meeting the market from earlier cuts from rivals. But some are also taking levels to new recent lows, especially by challenger banks. The cuts at challenger banks are primarily a reaction to earlier cuts at major banks, restoring their rate advantages.
The overall effect is to reduce the market level of fixed interest rates on home loans.
It’s hard to see how the RBNZ would be happy with this new lead, as that’s not the signal they’re trying to get with OCR rate increases.
They’re probably grumpy to market moves, especially since most of them are one- to three-year fixed rate, where the main activity of refinancing and new home loans tends to be concentrated. Perhaps a saving grace is that we are in the dead of winter when overall market activity is weak.
But the normal spring home sales season begins in early September and kicks into high gear from mid-September. This year, much will depend on the state of the new “buyer’s market” and whether it will still be there in the spring. It looks like it will. For growing resale transactions that typically take place in the spring, this will in turn depend on how realistic sellers are to “meet the market” (or code to accept lower prices.) If sellers are willing to sell and volumes increase normally, then mortgage interest goes down. the rates will really undermine the signals that the RBNZ is trying to send.
Wholesale swap rate markets then become influential. If they react to offshore market signals by leaving rates on a downward trajectory, especially for one-, two-, and three-year maturities, the RBNZ will need to redouble its efforts to counter this trend to justify its l ‘OCR.
Watch for local inflation rates (next reveal October 18) and unemployment rate (next reveal November 2). The RBNZ has OCR exams on August 17, October 5 and November 23.
A helpful way to make sense of these home loan rate changes is to use our full function mortgage calculator which is also below. (Term deposit rates can be estimated using this calculator).
And if you already have a fixed-term mortgage that is not up for renewal right now, our break cost calculator can help you assess your options. But while breakout fees should be minimal in a rising market, they will start to bite in a falling market.
Here is the updated overview of the lowest advertised fixed term mortgage rates currently offered by major retail banks.