How Low Can They Go?
There have been exciting changes to both rates and servicing calculations recently, writes Ryan Smuts.
1 October 2019
Since the recent OCR cut in August, bank mortgage rates have continued to trickle downward, and in addition, we’ve even seen reductions in non-bank pricing too. For borrowers, this is nothing short of exciting as we have seen changes in interest rates and bank servicing calculations.
In Australia debt servicing calculations have gotten easier, and the recent reduction in rates here has had a bit of an effect on our debt servicing too – for example, ASB has reduced their assessment rate by 0.50% from 7.70% down to 7.20% and ANZ has reduced by 0.35% from 7.25% down to 6.90%. While these are a long way off what the banks are offering in terms of mortgage rates, it is still a step in the right direction and could mean those who had their borrowing capacity measured may be eligible for slightly more borrowing now. The interest rate market remains competitive, with New Zealand and Aussie banks both competing fiercely for the best rate in different terms, however, the Chinese banks are ahead by a mile at this stage.
Kiwibank was the first to release a five-year rate under 4% (3.99%) with other banks competing for market share in the one and two-year spaces. In the short-term rates, BNZ has been leading with 3.54% for two years, and with another drop on September 23, to a two-year rate of 3.49%. Earlier in the month, HSBC took to offering one rate across the board – 3.35% fixed from one to five years, which is still the lowest mortgage rate for longer-term funding at the moment. The lowest rates we’ve seen
come from the Bank of China with the one and two-year rate being offered as 3.15%. That being said some of the Chinese banks aren’t doing cash contributions and so if you are considering refinancing, rates aren’t the only thing to compare.
The question around whether to float while riding the downward curve is one we are often asked. It comes down to how long you intend to float and what your floating rate would be. If you wait an extended period on a higher floating rate while you wait for the sharpest fixed rate, chances are you lose out on a rolling basis because the rates have to drop significantly for you to make back what you lost.
Mortgage interest is usually the highest cost associated with holding property. Lower rates can translate into sizeable cash flow differences: on this basis, it makes sense to check with an adviser who can help you take advantage of what the market has to offer. Far too often we see clients chasing the best possible mortgage rate for new borrowing completely disregarding their existing mortgages. It is worth running an analysis on whether breaking and re-fixing is more feasible for you, both comparatively and also when looking into the future. ■
The interest rates specified in this table were accurate on 20/09/2019. Interest rates are subject to change without notice. Different fees and charges apply to each loan depending on the mortgage lender. Seek expert advice to determine the mortgage lender that is right for you and your circumstances. A Disclosure Statement is available on request and free of charge. Data provided by mortgagerates.co.nz.