Kiwibank cuts its 1-year fixed rate sharply

Over the past three weeks, mortgage interest rates have been generally stable. The main activity has been the run-in of the prior floating rate increased from the last RBNZ OCR hike, along with some minor adjustments by the challenger banks.

But in the background, wholesale swap rates have been very volatile.

The last significant change made by a major bank to home loan rates was a small topping by ASB on July 8. Since then, swap rates have risen over +30 bps over the next two weeks, then dropped over -30 bps over the past week or so for a one-year term, and -40 basis points for a two-year term.

Banks generally watched the rise without reacting, but the fall motivated Kiwibank to re-enter the market with a rate cut.

Kiwibank cut its one-year rate by -24 basis points to 4.95% and cut its two-year fixed rate by the same amount to 5.45%.

Their new one-year fixed rate is -30 to -40 basis points lower than all of its major rivals, and just +5 basis points above the market leader for Heartland Bank rates.

Their new two-year fixed rate, however, matches only their competitors (even if the net drop in wholesale rates is greater over two years).

Kiwibank did not change its term deposit rates at the same time, leaving its 4% one-year offer in place.

If other banks follow Kiwibank’s movement in one-year rates, they will see margin compression for all the business they write for a fixed one-year rate. But already five other challenger banks are offering rates below 5% over one year.

Meanwhile, borrowers seem more motivated to hedge against potential rising mortgage rates, rather than to get the last drop of savings by going short. Fixed one- and two-year terms are getting longer, with three- and even five-year commitments becoming increasingly popular.

The next OCR rate change is scheduled for Wednesday, August 17, when a full monetary policy statement will be released with in-depth commentary, so we can find out the central bank’s current thinking on these parameters.

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.

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