Small lenders take on big banks

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Finally we are starting to see some of last week’s cut in the official cash rate being passed onto borrowers, but not by the banks.

Tuesday, May 5th 2009, 10:05PM

Two of the smaller non-bank lenders, PSIS and CBS Canterbury have cut 50 basis points off their floating home loan rates.

The only bank to reduce rates since the 50 point cut to the OCR last week has been Westpac – which lowered its six-month rate 40 points to 5.39%.

PSIS also cut all its other rates out to four years, by between 20 points and 40 points.

It also has a “discounted floating rate” of 5.25%. It says this option is designed for first home buyers with a minimum 20% deposit, it offers a discount on the floating rate for the first year and requires customers to "lock" into a floating rate option for a total of three years.

CBS made less sweeping changes, lowering its six month and one year rates by 26 and 46 points respectively, but increasing its five year rate 10 points to 7.60% which is one of the highest rates in this term.

The changes mean that PSIS now has the lowest floating rates in the market and CBS is offering rates in line with the main banks. PSIS also is a leader in the six month market, in line with Westpac, and CBS ranks in the middle of the rate range for this term.

The key reason why banks haven’t passed on the OCR cuts to home owners is that they are having to compete fiercely for deposit money to fund their lending activities. This increased competition has meant that deposit rates have had to rise, thus taking away the ability to reduce loan rates.

To check and compare mortgage rates from all lenders click here

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