TSB slashes rates
TSB Bank is the latest to join the frenzied slashing of fixed home loan rates, but the majority of mortgage holders are still being left out in the cold.
The New Zealand-owned banking cut its two-year fixed-term interest rate 28 basis points to a market leading 5.5 per cent today, having already dropped its one-year rate to 5.2 per cent earlier.
This week has seen fixed mortgage rates fall to historic lows across the board, with all the major banks getting in on the action.
But the move is cold comfort for the holders of an estimated 975,000 floating mortgages, who account for 70 per cent of the banks' home loan books.
TSB Bank said its floating interest rate would remain unchanged at 5.79 per cent, following the lead of major banks, who have all left floating rates untouched for months.
The assault on fixed term rates means that locking in for a one or two year term is often now cheaper than floating, which generally ranges between 5.65 and 5.8 per cent interest.
"What we tend to find is that there are quite distinct differences between when floating rates change and when fixed rates change," said Claire Matthews, senior lecturer at Massey University's Centre for Banking Studies.
"They don't move together, because there are different funding patterns and pricing patterns."
Bank swap rates - or the price paid for funding - strongly influenced fixed rates, she said, while the key measure for floating rates was the Official Cash Rate.
Set by the Reserve Bank, the OCR is widely expected to be pared back 25 basis points to 2.25 per cent at the next meeting in June.
Mortgage broker Steve McGowan, managing director at Advoco, said the banks were probably encouraging people to switch back to fixed rates to swing the balance back from floating.
"It also secures clients with that particular lender. With the floating rate, customers are free to move wherever they like," he said.
The fixed rate lures would definitely pay off, he said, but some borrowers would be wise to wait and see what happened as the banks continued to rally for position.
However, the final decision on whether to switch would come down to personal circumstances.
"That's why it's really a personal choice, about wanting security for your own family. If that's really important to you, then that's a reason you should fix your rate."