July Mortgage rates: A question for our readers
Hi all,
Does anyone know why ASB cut mortgage rates following the OCR decision? Bank credit funding costs have been going through the roof – which is why the RBNZ felt that it needed to cut the OCR just to prevent large increases in mortgage rates!
I’ve heard that Kiwibank can cut rates because of the large amount of domestic funding it has under its thumb. I was wondering if there is there something specific to ASB that has allowed them to cut rates? If anyone has any idea I would love to hear from them in the comments.
Update: Westpac as well – still only the two year rate though, so it could still be viewed as “cheap” advertising.
Update 2: According to Good Returns this was the interest rate action:
Following the Reserve Bank cutting the official cash rate by 25 basis points last Thursday, ASB, TSB, Bank Direct, Sovereign and Westpac all reduced their two-year rates.
ANZ and National Bank broke ranks with their competitors and announced they would cut one year fixed rates as well as two year rates. Their two year rates came down 25 basis points to 8.95% and their one-year rates are down 20 points to 9.20%.
Hmmmm.
Matt
I understand that the only profit Kiwibank makes is from agency fees from POstbank i.e. fees that POstbank was earning prior to the creation of KIwibank.
A cyncical Act voter like me might suggest that KIwibank can reduce it’s rates because it is subsidised by us long suffering taxpayers. Lets hope John Key flogs it off to one the Aussie banks it is always criticizing.
Bryan
Hi Bryan,
While that might be fine for Kiwibank, it does not answer my question about ASB.
The only response I have received so far is that ASB may be trying to gain some market share – but I was wondering if there is any specific reason why ASB is able to do this while other Bank’s cannot.
Check out ASB’s General Disclosure Statement – if I remember correctly, they are funded proportionally more out of householders deposits than the other three big banks, relative to their exposures to international wholesale funds.
“if I remember correctly, they are funded proportionally more out of householders deposits than the other three big banks, relative to their exposures to international wholesale funds”
That was my suspicion, interesting stuff.
This raises the following question for me. If it is becoming relatively cheaper for banks to use domestically sourced credit won’t this lead to an improvement in our current account position. If we believe our current account deficit is too large, shouldn’t we allow banks to lift interest rates to attract further domestic credit – in a sense allowing the current recession to correct the imbalances in the domestic economy.
I guess the Bank feels that consumer confidence and domestic demand is falling “too quickly” and so we need to prevent interest rates from rising domestically in order to slow down the process of correction.
I’m not sure – I think the focus needs to still be on inflation expectations – even if that means mortgage rates will rise further. Unemployment is fricken 3.6%, its not like we’re looking down the barrel of a full scale depression here. I guess we will see
I don’t know if this would have much of an effect on ASB’s rates, but when I was re-shopping around for banks earlier this year I noticed that only ASB and Kiwibank offered high interest savings accounts (>8%) with little to no minimum balance. If many people were using these accounts for savings due to the low cost of entry, could this have had an effect on their domesticly sourced credit?
“If many people were using these accounts for savings due to the low cost of entry, could this have had an effect on their domesticly sourced credit”
Too a degree maybe. It is interesting to note that so far only the 2-year rates have been cut. It will be interesting to note where rates head over the next month!
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