Official Cash Rate cut to 2.50%

The Official Cash Rate was cut by 50 basis points last Thursday to 2.50%.

To date the only Bank movement on home loan interest rates that we have seen is Westpac’s cut of 40 basis points to its 6 month fixed interest rate. This now stands at 5.39%.

The cut was accompanied by some strong wording from the Governor, including..”We expect to keep the OCR at or below the current level through until the later part of 2010″. This was done in part to try and jawbone the interest rate markets down following on from his displeasure at the extensive rises in long term fixed interest rates.

Late last week the 2 year swap rate was at 3.44%. The 5 year swap rate was at 4.65%, a reduction from the previous week.

We shall patiently wait for any movements to flow through to the home loan interest rate market.

Update 11 May 2009.

Anz and National, who are effectively one and the same, have reduced their 6 month fixed interest rate by 0.34% to 5.45%. Their 1 year fixed interest rate is down to 5.50%  In addition they have a cheeky wee number in the form of a 3 month fixed interest rate of 5.35%.

And that folks, looks to be our lot, from the last Official Cash Rate reduction. 👿


Something to consider for borrowers coming off fixed interest rates currently is to roll onto a 6 month fixed interest rate @ 5.50% but maintain your monthly repayments at the same level as what they were prior to the re fix.

This would mean your getting the lowest interest rate possible currently and that more of your monthly repayment is going towards the reduction of the amount of your loan that is outstanding. That is assuming of course that you are managing with your existing repayments.


5 Year Swap Rates Decline

The 5 year swap rate has declined to 4.78%.  This is down from 5.12%  only 4 weeks ago and 5.03% last week.

The swap rates are the cost to the banks of borrowing funds for a fixed period. A margin is added to this, which is then what the mortgage holder obtains.

The majority of 5 year fixed rates are currently around the 7.50% level.

So despite a decrease in the cost to your bank of 5 year money recently, there has been no decrease in cost to the customer.


An anouncement from the Reserve Bank on the Official Cash Rate is due on the 30th of this month. We are expecting a cut of 0.50% with some reasonably strong wording around the banking system passing on the cuts to customers and statements that interest rates could remain low for some time yet.  This could jolt some further decreases in swap rates with hopefully lower home loan interest rates for customers.

If your considering re fixing your home loan at present, we suggest you wait until after the Reserve Bank announcement.

Another Official Cash Rate Cut

The Reserve Bank announced a further cut to the OCR of 0.50% taking us down to 3%. Further good news for those with mortgages.

We noted 2 months ago the ASB’s home loan 5 year fixed interest rate at 5.95%, and that one should be considering locking some debt in at that rate.  We had hoped that the ASB move would have pulled the other Banks down to similar levels. This did not eventuate and subsequently ASB raised their home loan 5 year fixed interest rate twice. It now sits at an above market 6.75%.

As a result, we have increasingly come to the view that now is that time to be locking in some long term debt. The 5 year swap rate market seems to have stalled somewhat, after falling off a cliff the past few months. Banks are aware that there is a large chunk of the market that have recently come off fixed interest rates who have been holding off re fixing in an attempt to pick the bottom which leads us to suspect that they may not have a desire to discount these long rates. We suspect also that recent tightening of credit criteria is limiting home refinance activities,(the movement from one bank to another) thereby reducing competition. In addition, lenders are facing increases in their cost of obtaining funds to lend in the form of, increased margins on funds from offshore, the fee for using the government guarantee, and rising deposit rates here in NZ.

As such home owners, who have no intention of selling in the near future, could lock in half their floating mortgage debt now to a long term fixed interest rate, safe in the knowledge that they have received a historically good home loan rate. This allows the possibility of fixing additional debt in the near future if rates were to fall further, and has an added benefit in that you have now split your mortgage, so that regardless of future interest rate moves, not all of the mortgage will come up for renewal on the same day. This protects you from all of your loan rolling onto a substancially higher interest rate on one day in the future, and having to take, that interest rate on the day.  As independent brokers we are always working towards your future.

If your lender provides a no cost “rate lock facility”, then one could secure the interest rate now for implementation in 60 days time. Given that Floating home loan interest rates are now below the 5 year fixed rate , you’ll eke out a few days on a lower interest rate, but with the certainty of a long term fixed interest rate coming shortly.

Our caveat is that further worldwide financial deterioration, raising the possibility of the US Government printing money, forcing up the price of long dated bonds, and thereby providing for a cheaper borrowing cost to our banks for the money they require from offshore.  However if one is glued 24/7 to CNBC waiting for this to happen then you’ll be ignoring what i say anyway. 😉

We note the silence of Kiwibank, who has up until now, been very quick and vocal in leading the way with rate cuts.

As always, get in touch to talk through your re fixing requirements.

UPDATE: 24/3/2009  Well low and behold a couple of days after our post The Fed did announce the crank up of the printing press.  This is the creation of paper money (actually they are doing it electronically) to increase banks capital with a hope of them increasing their lending. The word we received 2 days ago from someone trading the treasury markets was that this had merely stalled the rise in the 5 year swap rate yield curve.

The feedback we have received from the Banks over the past few days is that there are a lot of customers who have been re fixing their mortgages at the long term interest rates prior to the cutoff period for the recent rises in 3,4 and 5 year fixed interest rates. This adds pressure on these long terms rates due to demand.

The overnight rise in the DOW of 500 points on the back of a  US Treasury announcement to facilitate the buy up of a $US1 trillion of toxic assets has today added 0.11% onto our 5 year swap rate.  This is due to investors taking their money from the perceived “safety” of the bond market (ie: selling bonds and treasuries, leading to rises in interest rate yields) and moving their capital into more “risky” assets such as stocks.

Long term interest rates are to a large extent based on peoples expectations of the future, which helps to explain why these rates are rising now, despite the here and now in NZ commentary, remaining a little gloomy. “The market” is currently believing prospects for the future may be looking rosier.

We remain comfortable with the strategy of locking in some long term debt now dependant on individual circumstances.

UPDATE:30/3/2009  How rapidly rates have changed.!! There have been substancial moves in the 3,4 and 5 year fixed interest rates.  Market demand has driven these up so rapidly that the ASB (as an example) raised their rates on Thursday only to raise them again on Friday night. The 5 year rate now sits at 7.50% and the 3 year rate is now 6.75%.  The sudden and dramatic move in the 5 year rate has been sufficient to now make us question locking in this rate currently. We prefer a wait and see approach now. We suspect the Reserve Bank will not be overly happy about such sharp increases in borrowing costs, leaving open the possibility of a “market” jolting move or wording come their next OCR announcement on the 30th of April.

ASB raises long dated home loan fixed interest rates

In one week ASB’s 5 year fixed home loan interest rate has gone from 5.95% to 6.50%. This shows the vagaries of making interest rate predictions.

The 5 year swap rate, the cost to the Bank of borrowing funds for 5 years currently sits at 4.10% (the 10 year average by the way is 7%).

A lovely margin of 2.40%. 

This is an example, as confirmed by the recent reporting season in Australia, that the major banks here have been increasing their margins.


Official Cash Rate cut by a further 1.50%

The cut today of 1.50% has followed on from the 1.50% cut made in December.  The Reserve Bank has moved rapidly to lower borrowing costs.

Westpac responded immediately and their home loan 3 year fixed rate now sits at 5.99%.

This has been trumped by ASB later in the day who are now 5.95% across the board from 6 months through to 5 years fixed.

While many of us are waiting, including your mortgage broker to see how low rates will go in an attempt to pick the bottom, those of a more conservative nature and dependant on personal circumstances, could be looking at locking in a portion of debt for the longer term now, with the remainder floating till the next Reserve Bank announcement on the 12th of March.

As always, get in touch to discuss your rate re fixing requirements. 😆

Official Cash Rate slashed by 1.5%

The Reserve Bank today reduced the Official Cash Rate (OCR) from 6.5 percent to 5.0 percent.

The banks who have moved in advance of the cut the past couple of weeks are now likely to revisit their home loan interest rates, with further cuts to floating and short term fixed interest rates possible.

For the first time that i can remember the Governor also provided a stab at the banks with the following.

“To ensure the response we are seeking, we expect financial institutions to play their part in the economic adjustment process by passing on lower wholesale interest rates to their customers.”

Hear, Hear.! 

Aussie cuts their interest rates by 1%

The RBA in Australia has today cut rates by a full 1%. This is the 4th cut in as many months and equates to 3% in cuts since September.

CBA Bank, announced immediately they were passing on the full 1% to customers.  CBA is the owner of ASB Bank, Sovereign and Bank Direct here in New Zealand.

Our Reserve Bank has some catching up to do and we are picking at least a 1% cut in our OCR on thursday.

Home loan Interest Rates Succumbing

With some economists picking a cut in the official cash rate on the 4th of December of as much as 1%, home loan interest rates have started to come down in anticipation.

Westpac lead the way yesterday with their 6 month fixed interest rate now at 7.65%.

ASB is following tomorrow with a 6 month fixed interest rate of 7.35%.

great news for mortgage holders :-0

Official Cash Rate Cut by 1%

9.15am 23/10/08 The Reserve Bank has slashed the official cash rate (OCR) this morning by a full 1%.

He has also indicated a bias towards further rate cuts going forward.

He noted “New Zealand can expect to face lower demand for exports and credit is likely to be less readily available”.

Under normal circumstances one would expect home loan Floating interest rates to drop by 1% forthwith.

Lets see what the Banks actually pass on to customers.

11.45am 23/10/08  ASB Bank has announced rate cuts across all fixed interest rates.

The most notable being 6 months fixed down from 9.25% to 7.99%.

Unusually there is no change to their floating interest rates though.

6.20pm  ANZ has announced fixed interest rate declines. But also no change to their floating interest rates.

Westpac announced a floating interest rate decrease but no changes to fixed interest rates.

Kiwibank has cut their home loan interest rates across the board.

We expect some further jockeying for position over the next week amongst the banks.

5pm 24/10/08 ANZ have followed up today with full 1% cuts off floating and revolving credit interest rates.

PH: 0800 2 FINANCE. Auckland Based Mortgage and Insurance Assistance Since 2002