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Competitive pressure amongst banks eases

By Philip Macalister

Around a year ago many economists were suggesting fixing for between one and two years as rates would start to fall from around now and would fall quite quickly.

Well the total opposite has happened. Since then those predictions for cuts have been pushed out from falls in the first half of this year, to don't expect any cuts this year.

Right now there is a view that the Reserve Bank could still push up its official cash rate a couple more times till cuts come in.

Perhaps the biggest lesson out of this is simply to spread your home loan out across a number of different terms.

This is particularly relevant rates continue to increase and it appears price competition has decreased.

Since the start of the year mainstream banks have lifted their two-year rates about five times from the 8.20% mark to 8.90%.

Currently all the mainstream banks are offering the same standard rates. Interest rate comparison site GoodReturns shows that floating rates are at 9.80% and one more RBNZ rise will push them over the 10% mark (or close to it, like 9.99%). One and two year rates are 8.90%, three year rates sit at 8.80% and five year rates are 8.60%.

None of them look cheap at the moment.

The other trend is that the competitive pressure between banks on headline rate seems to have abated. One observation is that BNZ's Unbeatable campaign has come to an end and has been replaced with its new TotalMoney offering which is broader than just mortgages.

The curtailing of Unbeatable means that banks have been able to increase their margins.
While the mainstream banks look alike at present there are some other options around including second tier banks and non-bank lenders.

In fact there has been a major turn around and banks now have the more expensive fixed rates and smaller lenders offer lower rates. For instance in the two-year term Southern Cross is offering 8.40%, HSBC 8.55%, and Bank Direct is at 8.60%.

The lender to go against the rising trend at the moment is Kiwibank which last week actually cut its three-year rate by 20 basis points.