New Zealand mortgage borrowers now get flat rates with bigger discounts for Aussies, even if rates drop everywhere. They fall faster here than over the ditch

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Westpac offers a two-year flat rate for just “2.29%”. ANZ’s equivalent offer is the same.

These are Australian offers.

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So why are Kiwis being offered 2.79% or 2.95% for the same fixed rate mortgage and told these are ‘record low rates’?

In terms of cost to the borrower, the offer in New Zealand is actually better.

The problem is that the mortgage markets in each country are very different. The New Zealand market is 80%+ based on fixed income contracts. The Australian mortgage market is also dominated by variable rate schemes.

But it’s more complicated than that. Our mortgage contracts are relatively simple matters; you borrow during the term at a certain interest rate.

In Australia, however, the stated interest rate is just the beginning. There are bundle and package costs, and related ‘discounts’, to complicate things further. Their regulators require banks to publish a comparison percentage to expose the true costs. And 80% of all Aussie home loans are wrapped around these opaque bundle arrangements.

We’ve been tracking a New Zealand-Australia mortgage comparison for over five years now, publishing the shifting fine Kiwi homeowners pay compared to Australians. We last did that a year ago.

And now it’s no longer a ‘penalty’ – Kiwis get lower mortgage rates.

And this comes at a time when the Aussies are finding out that fixed deals are a better deal, even after taking into account their opaque fees

And for the first time in our memory, New Zealand borrower prices have shifted in our favor. Home loans are cheaper in New Zealand than in Australia.

Here’s the current comparison as we’ve consistently done it since 2015:

Residential Mortgage Interest Rates

May 31, 2020, <80% LVR Floating 1 year 2 years 3 years 4 years 5 years
New Zealand % % % % % %
ANZ 4.44 2.79 2.95 3.35 4.45 4.55
ASB 4.45 2.85 2.69 3.35 3.45 3.55
BNZ 4.55 2.79 2.69 2.99 2.99 2.99
HSBC 4.49 2.60 2.65 2.80 2.89 2.99
kiwi bank 4.40 2.65 2.79 3.25 3.45 3.55
westpac 4.59 2.79 2.69 2.79 2.99 2.99
NZ average 4.49 2.75 2.74 3.09 3.37 3.44
exchange rates 0.26* 0.25 0.23 0.25 0.29 0.35
margin to trade 4.23 2.50 2.51 2.84 3.08 3.09
Australia
ANZ** 4.49 4.16 4.02 3.09 3.90 3.82
CBA (parent company ASB) ** 4.27 4.13 3.99 3.87 3.98 3.93
NAB (parent of BNZ) ** 3.45 4.18 4.04 3.91 3.95 3.87
HSBC 3.26 3.21 3.16 3.12 3.13 3.18
Suncorp 3.26 3.16 3.17 3.20
Westpac ** 3.04 3.61 3.53 3.45 3.54 3.51
AU average 3.63 3.86 3.65 3.43 3.70 3.59
Exchange rates/BBSW 0.14* 0.17 0.21 0.26 0.35 0.44
margin to trade 3.49 3.69 3.44 3.17 3.35 3.15
* 90 Day Bank Account Rate
** these are advantageous package rates that come with large annual costs
differential (NZ-AU) 0.86 -1.11 -0.91 -0.34 -0.33 -0.15
differential in May-19 0.39 -0.14 0.00 0.07 0.09 0.30
differential in Nov-18 0.67 -0.12 0.21 0.35 0.79 1.05
differential in Nov-17 0.89 0.55 0.64 0.90 1.33 1.39
differential in Jan-17 0.28 0.13 0.59 0.86 0.89 0.94
differential in aug-15 0.69 0.26 0.16 0.56 0.78 0.83
differential in Feb-15 1.02 1.06 0.92 1.00 1.01 1.11

The benefits here are significant – about 1% on average for one- and two-year fixed-rate contracts.

Interestingly, the penalty Kiwis pay for floating rate deals has gotten worse over the past year compared to the Aussie options. But that’s a fine that applies to less than 20% of homeowners, probably a lot less if you ignore the SME loans that happen within the bank’s mortgage books.

The real commercial reason why home loan prices in Australia and New Zealand have not fallen is that Australian operations are very expensive. Taking ANZ as an example, they report a group NIM (net interest margin) of just 1.7%, while New Zealand’s ANZ business still achieved 2.1% in the same period to March 2020. So despite charging higher effective rates to customers on the largest part of their loan portfolio (mortgages), the Australian bank ended up with a smaller NIM.

Wholesale money is needed to balance the maturity adjustment requirements.

May 31, 2020 Floating 1 year 2 years 3 years 4 years 5 years
% % % % % %
NZ margin to trade +4.23 +2.50 +2.51 +2.84 +3.08 +3.09
AU margin to trade +3.49 +3.69 +3.44 +3.17 +3.35 +3.15
and this compares to the levels in May 2019 as follows…
NZ margin to trade +4.08 +2.39 +2.47 +2.54 +2.90 +2.94
AU margin to trade +3.94 +2.78 +2.75 +2.75 +2.99 +2.82
and compares to the levels in November 2018…
NZ margin to trade +3.86 +1.93 +2.04 +2.20 +2.71 +2.69
AU margin to trade +3.19 +2.05 +1.83 +1.85 +1.92 +1.63
and compares to the levels in November 2017…
NZ margin to trade +3.93 +2.51 +2.42 +2.59 +3.14 +3.08
AU margin to trade +3.28 +2.21 +2.08 +2.03 +2.05 +1.98

Again, we see tighter margins to swap for fixed rates in New Zealand and tighter in Australia for floating rates.

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