Two steps forward, one step backwards. This is probably a fitting description for progress in the mortgage market at present.
There have been reductions in fixed term rates from several lenders during the past week but the ANZ and National Bank – both part of the same group and the largest lending block – have increased their floating rates to an eye-popping 10.95%, the highest in the market bar Guardian Trust at 11.5%. There have been increases on some fixed rates from lenders too although, overall, rate reductions outnumber rises.
Many of the reductions result from re-pricing by Australian funder AMS, which provides mortgage finance for several non bank lenders and which had put up rates sharply in recent months. Several AMS-funded lenders are still charging 10% across the board – fixed and floating – for mortgages. But the recent reductions are a further sign that the interest rate ground may be shifting as expectations rise that cuts in the official rate in New Zealand are on the horizon and that there may have been some easing in international credit conditions.
It is worth noting, however, that a falling official rate will not necessarily result in uniform cuts across the board in the mortgage market. In the United Kingdom lenders have continued to increase rates even though the bank base rate has been reduced.
ANZ and National Bank say that the global credit market is still adjusting to the sub-prime credit problems in the US, forcing all banks in the world to pay more for deposits. Accordingly, ANZ and National banks have had adjust some of their lending rates to pass on some of the higher funding costs they are paying for both local deposits and wholesale funding. Both banks have recently announced headline 9% term deposit rates.
It is probably only a matter of time before other banks follow ANZ and National up with their variable rate rises.
One of the pressures in the market at present is the reduction in the number of lenders and this week Pacific Home Loans has joined the list of lenders that have closed to new business in New Zealand. Pacific is part of the Pioneer mortgage group, which recently parted company with one of its major funders, the ANZ subsidiary Origin.
Despite the departure of several lenders, the $44 billion of fixed home loans up for renewal this year should encourage competition among those that remain.
Many of the recent reductions have been for two and three year fixed rates. But the possibility that official rates will start to fall hard and fast within months is leading economists to recommend against fixing over long periods, certainly beyond two years although some still suggest a mixed bag of maturities to hedge bets.
Westpac is recommending the combination of a one-year fixed rate and its 33 month special at 9.5%.
ANZ and National Bank are offering reduced 30 month homeloan rates at 9.4% down from 9.5%. Over one year, rates are as high as 10.95% although there are many lenders still charging less than 10%. Kiwibank is charging 9.29% over two years but rates are as high as 10.65%.