The Commerce Commission has cleared home loan break fees charged by National Bank, ASB, SBS Bank and Bank of New Zealand, saying they’re likely to comply with consumer finance law.
ANZ Bank, Kiwibank and Westpac are still being investigated.
Banks impose the fees when customers want to quit fixed-rate mortgages early to take advantage of lower market rates. There’s been a surge in mortgage holders seeking to refinance their loans as the central bank’s interest rate cuts drove down the costs of fixed-rate mortgages.
“The subject of break fees is topical at the moment,” said Graham Gill, the Commerce Commission’s Auckland-based fair trading manager. “Due to the significant movement in interest rates in recent times, many consumers have been asking banks about the cost of breaking their fixed mortgages.”
Reserve Bank Governor Alan Bollard today slashed the official cash rate by 50 basis points to a record low 2.5% and said rates will stay low until the second half of 2010. Bollard has chided banks for not making deeper cuts to the longer-term fixed rate mortgages preferred by many New Zealanders, which has rendered his OCR cuts less effective.
Five-year fixed mortgage rates have dropped by an average 1.9 percentage points in the last 12 months to an average 7.55%, according to the Good Returns website. The decline is dwarfed by the movement in short-term rates, which are more sensitive to movements in the OCR.
Home loans fixed for six months have tumbled by an average 4.2 percentage points since April 2008 to 5.7%. The only movement in fixed rates so far today has been at Westpac, which lowered its six-month rate by 40 basis points to 5.39%.
The commission concluded that the four banks it cleared were using formulae to calculate the break fees that were appropriate under the Credit Contracts and Consumer Finance Act. However, it is continuing investigations into break fees charged by Australia and New Zealand Banking Group, Kiwibank and Westpac, Gill said.