Banks charge New Zealand customers more for home loans
Chanelle Farrier was upset when she moved to New Zealand from Australia and realised her home loan was going to cost her more on this side of the Tasman.
"Our rate in Australia was much lower than the New Zealand floating interest rate," she said. "And they had great savings accounts with high interest, too."
She had managed to take some of the sting out by negotiating a good fixed rate but said it was "very disappointing" at first.
An analysis shows borrowing is more expensive in New Zealand.
NAB offers 3.98 per cent for two years fixed to owner-occupiers in Australia. Here, its subsidiary BNZ charges 4.74 per cent as a special rate for the same term.
ASB's parent CBA charges 3.99 per cent for the same term, compared to a special rate 4.74 per cent here. Westpac offers 4.08 per cent to Australian borrowers, and a 4.85 per cent special to New Zealanders.
ANZ also has a noticeable difference – Australian borrowers pay 4.03 per cent for a two-year term, while New Zealanders can access only a special rate of 4.85 per cent.
Banking expert Claire Matthews, of Massey University, said Australian borrowers had had an easier time in the past, too.
'When rates got high in the late 1980s, rates over 20 per cent were standard in New Zealand, but never went over 18 per cent in Australia. More recently, when home loan variable rates got back over 10 per cent in 2007/2008, Australian home loans didn't."
The clearest measure of how much money banks make out of borrowers is their net interest margin. This represents the difference between what they pay for the money they receive from depositors, and what they charge borrowers.
The recent Reserve Bank financial stability report showed New Zealand banks had an interest margin of 215 basis points, compared to an OECD median of 271. Australia's is 201, according to PwC.
KPMG analysis showed downward pressure on net interest margins – seven out of nine of the banks who responded to its survey had experienced margin reductions, particularly as more people moved to fixed-rate loans.
Australia's cash rate is 1.5 per cent, compared to 1.75 per cent in New Zealand.
But economist Shamubeel Eaqub said banks were making more out of New Zealanders "because they can".
"They'll argue it's because it's a smaller market and they have to spread the risk across a smaller group of customers so they need more of a risk premium but I think it's because we have a relatively small banking sector and like everything else in New Zealand everything is expensive and it shows up in the margin they charge."
PwC financial services partner Sam Shuttleworth said New Zealand banks' margin had historically been slightly higher but tracked the movement of Australia's.
He said different components of lending would drive the margin, including the different pricing applied to household and non-household lending and the make-up of business lending. Big corporates would pay lower interest rates than SMEs in some cases. How many customers had fixed and floating loans would also matter. "There are so many inputs."
He said New Zealand was a competitive marketplace with Australian players and locally-owned banks such as TSB, SBS, Heartland and Kiwibank.
New Zealand Bankers' Association chief executive Karen Scott-Howman said the cost to banks of sourcing overseas wholesale funding, which in turn depended on market conditions, would make a difference.
"And our economic situation, which is reflected in international credit ratings. There's also the cost of sourcing funds domestically. In the current market there's a fair bit of competition there. Another factor is the Reserve Bank's official cash rate, which is what the central bank charges banks for overnight loans," she said.
"Given the number of factors involved, it's not surprising there would be difference in retail interest rates in different countries."