ANALYSIS: Turn on the TV and it's clear the banks want your mortgage. ANZ is rocking out to The Clash's Should I Stay or Should I Go - a not-so-subtle hint to homeowners who have mortgages with rival banks.
The mood on interest rates has changed quickly. Back in May, the Reserve Bank was talking about raising, not cutting, the Official Cash Rate. But the deterioration in the country's economic fortunes and a better-than-expected drop in inflation in July raised expectations of an early rate cut - which the Reserve Bank delivered last week, dropping the OCR to 5.25%.
The major banks have been cutting rates at speed; long-term rates were the first to drop below 6%, but now the banks discounting their short-term rates.
Expect bigger cuts and better deals in the next few months as the banks compete for first-home buyer attention and custom. The fight will be fierce, good news for homeowners struggling with 7%-plus interest rates.
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Just this week, ANZ's managing director for personal banking Grant Knuckey told the New Zealand Herald it was a "really competitive environment right now".
Homeowners and buyers can feel overwhelmed when there's this much change in the market. To this end, Opes and OneRoof are launching an interest rate cut counter. This will show Kiwis what deals are on offer and, importantly, which banks have been most keen to cut their rates.
Here’s how it works. This table shows the number of times each bank has cut its interest rates since the start of 2024. The table automatically updates every morning, reflecting the latest interest rate changes.
If a bank says it is cutting its one-year and two-year rates, that counts as two cuts. This recognises the size of the deals on offer.
At the time of writing, ASB is the keenest rate-cutter, announcing 38 cuts since the start of 2024, almost a third of which have come in the past two weeks. Next is Westpac, which has announced 37 interest rate cuts, again, a third of which have been made in the past two weeks.
Opes Partners resident economist Ed McKnight: "Homeowners and buyers can feel overwhelmed when there's this much change in the market." Photo / Fiona Goodall
This is astonishing. The banks are competing for market share. They’re trying to have the lowest rate in the market.
Regarding individual interest rates, the one-year rate has received the most cuts. All up, the banks have cut the one-year rate 26 times this year (the two-year rate is not far behind with a total of 24 cuts.
However, ANZ’s 18-month rate has had the biggest cut overall. At the start of the year, they advertised 7.15% for their 18-month rate. This has since been lowered to 5.99% at the time of writing.
That’s a total drop of 1.16 percentage points. If borrowers moved from the higher rate to the lower rate, they'd save $88 a week (that's based on a $500,000 mortgage that’s been paid off over 30 years).
In comparison, the floating rate hasn’t been cut much at all. Across all the banks, it has been cut only seven times, with the biggest cut being only 0.25 percentage points. That saves only $20 a week on the same $500,000 mortgage.
Westpac has also trimmed off the most of all their interest rates since the start of the year. They have cut a combined 6.15% off all their interest rates so far. TSB has trimmed the least out of the major banks so far, with a 5.19% cut from all their rates.
Given this, it’s reasonable to think that TSB will cut its rates within the next few weeks to keep up with the competition. Keep an eye on how this plays out as we gear up for the next OCR decision, in October.
- Ed McKnight is the resident economist at property investment company Opes Partners
