Kiwibank campaign ends

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Weekly Home Loan Report: Kiwibank has ended its two week price-cutting campaign designed to attract business from borrowers refinancing off maturing fixed rate deals. The bank has increased its 6-month to 3-year fixed term rates by 10 to 25 basis points.

Wednesday, May 30th 2007, 7:10AM

by Maria Scott

It’s three year rate has increased to 8.60%, but remains competitive against the 8.80% being charged by the major banks. Kiwibank says that most of the competitition in the market is concentrated on the three year rate at present.

Its campaign did not prompt competitors to rush into a fresh wave of discounting. The major banks appear to be trying to hold the line against price cutting for now.

Apart from Kiwibank’s move and some increases by non-bank lenders the market remains settled but this could be the calm before a storm?

The wholesale lending rates that determine the cost of fixed rate loans have crept up slightly in the last fortnight.

This is partly in anticipation of next week’s review by the Reserve Bank of the Official Cash Rate.

There are mixed views among economists about whether the OCR will be raised next week although the odds seem to have strengthened as a result of recent strong economic news.

Westpac forecast two weeks ago that the slight fall in wholesale rates seen earlier this month might be short-lived and that the current crop of fixed rates might soon be replaced by more expensive loans. The bank now thinks the Reserve Bank will raise the OCR next week to 8.00%.

There could be another 25 basis point rise before the end of the year. “If our OCR view pans out, floating rates still have some way to go,” says the bank in its latest rate review.

Its message to borrowers is to “fix now”.

Borrowers may, as Kiwibank says, be favouring three year terms but Westpac is recommending 18-month to two-year terms so borrowers can take advantage of future cuts.

Tony Alexander, chief economist at BNZ says lenders may start to compete on price again before long. Combined with the possibility that fixed rates may be edging lower later in the year, this creates opportunities to refinance at lower rates for those who choose floating or one-year fixes now.

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