Mortgage wars drive interest rates down

JAZIAL CROSSLEY
Last updated 05:00 15/05/2012
HEADS ABOVE WATER: Matt and Catherine Johnston have a mixture of floating and fixed rate loans on their Wainuiomata house.
KENT BLECHYNDEN/Fairfax NZ

HEADS ABOVE WATER: Matt and Catherine Johnston have a mixture of floating and fixed rate loans on their Wainuiomata house. "We always know the average of what we are paying," Mr Johnston says.

STRUGGLE: Gary and Janis Muir check their bills. Falling interest rates mean they now have less disposable income.
MURRAY WILSON/ Fairfax NZ
STRUGGLE: Gary and Janis Muir check their bills. Falling interest rates mean they now have less disposable income.

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Banks are slashing mortgage rates as wholesale lending costs drop but homeowners are warned the sweet situation will not last.

Last cab off the rank is ASB, which from today is cutting its one-year fixed rate to 5.25 per cent. Last week the Bank of New Zealand launched an 18-month fixed-rate package at only 5.1 per cent.

Kiwibank is offering an even cheaper rate – 4.99 per cent – but only to people with a deposit above 30 per cent of the loan value.

ANZ, National and Westpac banks have all followed BNZ's lead and cut their one-year fixed rates to 5.25 per cent.

The cost of borrowing money from overseas has fallen for the banks but a flat housing market and little growth in home loans have also contributed to the mortgage-rate cuts.

With consumers being conservative on borrowing, there is more competition for the existing mortgage pie.

BNZ chief operating officer of retail Glenn Patrick said the bank was uncertain how long it could offer such low rates for, however.

"Some of the longer-term [wholesale] funding costs have eased back a bit but how long that exists for, who knows? It's something that we're reviewing on a week-by-week basis. Offshore funding costs are moving around a bit."

ANZ national managing director of retail Kerri Thompson said domestic and international wholesale interest rate markets were volatile.

"There's currently a window for cheaper longer-term wholesale interest rates that ANZ is taking advantage of and we're passing this on to customers," she said.

"We're not sure how long this window will remain open. We hope to be able to keep it open for a while but we'll be reviewing it daily."

Cheaper home loan deals are also available to savvy borrowers who are not afraid to bargain. While low mortgage rates are being advertised, borrowers can reduce their costs even further with some skilled negotiating.

Roost mortgage broker Paul Richardson said there was intense competition in the market, with home-loan providers cannibalising each other as homeowners refinance to get the best deals.

"There's one lender out there, I won't say which, that is paying up to 1 per cent of the loan amount to go towards break costs so if it's a $500,000 loan they'll contribute $5000 which is a huge amount – we haven't had a situation like that before in my 15-year career."

A Wellington couple who recently bought a house with only a 5 per cent deposit bargained their bank down to reduce the mortgage rate first offered by 20 basis points.

They did so after hearing of friends who talked their lenders into slashing 0.5 per cent from their mortgage rates.

"The bank didn't offer the discount, we had to ask, but that was when we hadn't even committed at the pre-approval stage," said the Wellington buyers, who asked not to be named.

"Don't be coy in that situation – if you're looking for the a discount, ask what the best rate is and advise your bank or mortgage broker that you'll be looking around to see if anyone else can beat it.

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"Be explicit. Right now, the banks need you."

New Zealand Institute of Economic Research principal economist Shamubeel Eaqub said that, in the longer term, rates would return to more normal levels for New Zealand of around 8 per cent.

"What we've got at the moment is extraordinary low mortgage rates and I wouldn't expect them to stay there forever. In the short term, I think mortgage rates will remain around current levels for the next 12 months."

DAD JUGGLES FIVE LOANS TO 'PLAY IT SAFE'

Father of four Matt Johnston has seen interest rates rise and fall but, through an intricate system of loans, he tries to buffer himself from nasty surprises.

Since Mr Johnston, a data analyst, took out an "average" loan for his Wainuiomata home in 2007, interest rates have been as high as 8 per cent. BNZ is now offering a 5.1 per cent 18-month fixed rate.

With four young children, including three under school age, he has played it safe with a mixture of floating and fixed rates and said he had never been badly caught out by spiking floating rates.

"We always know the average of what we are paying ... there have been times when I thought I could be at a better rate."

However, the variety of five staggered loans means that, even if some fixed rates stay high when rates drop, at least a good portion of his interest rates drop.

If he did not have children, he would be more likely to take risks, such as reinvesting in investment properties and locking in loans at fixed-interest, interest-only for a period. "The risk is in not paying back principal, while freeing cash for investment purposes."

And despite having a commerce degree, a major in marketing and business experience, he has clear advice for anyone seeking a mortgage – shop around for a good interest rate and financial adviser.

THE LITTLE MONEY COUPLE HAVE GOT LEFT IN 'SOLID BANKS'

Before the 2008 financial crash, Palmerston North couple Gary and Janis Muir would use interest from their investments to visit relatives in Australia.

But the crash sucked up to $13,000 from their investments and the $9000 left in the bank gives them only enough for more basic needs.

"It's just sort of backup money," Mr Muir said.

The pair receive a pension of just over $520 a fortnight. Before the crash, they had about $12,000 to $13,000 tied up in finance companies. "It gave us a reasonable amount of interest."

It meant they could visit relatives in Australia every 18 months. Those trips were now a thing of the past, he said.

But chances of losing their remaining $9000 were now reduced.

"The money I have invested now is in solid banks, and there it will stay."

HOW DO OUR RATES COMPARE?

NEW ZEALAND

ANZ and National Bank: 1 year fixed 5.25%, simple variable 5.74%.

BNZ: 18 months fixed 5.1%, standard floating 5.99%.

Westpac: Choices 1 year fixed 5.25%, Choices Everyday floating 5.6%.

ASB: 1 year fixed 5.25%, variable 5.75%.

Kiwibank: 1 year fixed 4.99% with 30% equity otherwise 5.65%, variable 5.65%.

AUSTRALIA

Commonwealth Bank of Australia: 1 year fixed 6.14%, standard variable 7.01%.

NAB Australia: 1 year fixed rate 5.89%, base variable 6.49%.

BRITAIN

Barclays: 2 year fixed 3.79%, 2 year tracker 3.29%.

HSBC: 2 year fixed standard 4.99%, Lifetime tracker standard 4.99%.

UNITED STATES

Wells Fargo: 15 year fixed 3%, 5 year adjusted rate 2.25%.

Chase: 15 year fixed 3%, 5 year adjusted rate 2.375%.

- BusinessDay.co.nz

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