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A Race To The Bottom

Both banks and non-bank lenders’ rates are on a serious downward trajectory, which is fueling buoyancy in the market, writes Kris Pedersen.

By: Kris Pedersen

31 July 2020

There has been more rate movement over the course of the last month with all of it pointing downwards. Kiwibank have led the discount in floating rates with that down at 3.40%; ASB have removed the difference between “standard” and “special” rates - becoming the first main bank to do so in a move that should benefit first home buyers.

And while ANZ, Westpac and Bank of China had been leading the one-year space with a rate of 2.55%, HSBC have just cut that further under their premium product, with the lowest rate on offer in the market at 2.45%.

There seems to be a disconnect between many economists’ views and what is actually transpiring in most parts of the property market at present. Most are predicting house price decreases at the same time as auction clearance rates are up in many parts of the country and other factors such as expats coming home, investors looking for better returns and first home buyers noticing that in many areas, purchasing a home is now an attractive alternative to renting. These factors are resulting in a housing market that is holding up better than many analysts thought.

Pre Election Slowdown

We’ll have to wait to see if the normal market slowdown prior to an election actually happens this time as this also coincides with the effect of the wage subsidies coming off, which should give a better indication on where both the market stands and if interest rates will fall further.

From what we have seen, there has not been much demand so far in the longer-term rate space even with some lenders offering attractive five-year rates at as low as 2.99%.

There seems to be a general consensus as to what happens with the official cash rate over the short to medium term. As the economy is performing better than expected, there is a reasonable chance that it is not reduced further, however if we were to see an event which resulted in a further lockdown then the likelihood moves to us seeing the cash rate go negative.

In the non-bank space rates have been moving as well. Resimac, in particular, has been competitive in this space with their rates starting at 3.39% and the Bluestone funded Select product not too much higher starting at 3.49%.

There had been a lot of volatility initially in this area as funding became very tight through lockdown, however funders are now coming back into the market. First Mortgage Trust, who is one of the larger players, has started marketing again, as have a number of the smaller players in the market. While there is likely to be ongoing change, it is positive to see some lenders starting to open up again.

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