by Maria Scott
Lenders had put up rates over recent months independently of moves in the OCR and borrowers will see it as only fair that rates have come down with no nudge from the official rate.
Reductions started to come through within 24 hours of the Reserve Bank's statement with ASB and other lenders within its group, Bank Direct and Sovereign leading the pack. All the other major banks and many other lenders followed up with cuts to some or all of their fixed rates.
The reductions have been up to 40 basis points in some cases. That may not be a deal-maker for a stretched borrower but the expectation is that there is more to come.
ASB is forecasting that the cost of fixed rate loans across all terms will be 0.5 per cent to 1 per cent lower in 12 months and around 1.5 per cent lower in 2 years.
Increasing confidence that interest rates are on a clear downward path has prompted economists and advisers to recommend shorter-term fixes.
ASB, for example says that taking a 6 month rate now may enable you to fix for a longer term at a lower rate when the 6 month term expires. A more cautious approach would be to fix for 1 year to wait for the dust to settle.
Westpac thinks that scope for interest rate cuts will run out by early next year because inflation will still be a problem. Borrowers could adopt a wait-and-see approach, sitting on a floating rate. A cheaper option would be a six month rate, in the knowledge that you could miss out on even lower rates.
There could be further rate changes to come as lenders and markets absorb the latest news on official rates. At the time of writing the lowest floating rate among the largest banks was from ASB at 10.75 per cent except for BNZ on its TotalMoney package at 10.49 per cent. Lower floating rates were on offer from many of the smaller banks and non bank lenders including Kiwibank at 10.2 per cent.
The larger banks were generally more competitive over most of the fixed rate terms. For six month money ANZ, ASB and National Bank were charging 9.75 per cent and there were a few lower rates on offer from smaller lenders. Over 1 year all the major banks were charging 9.4 per cent except BNZ on its Standard and FlyBuys loans which were at 9.49 per cent. Over two years, 9.2 per cent was the favoured rate amount the major players although BNZ's Classic rate was a whisker lower at 9.19 per cent. Kiwibank's 2 year rate was also at 9.19 per cent.
Note that some lenders offer special rates on larger loans.
The good news on rates comes with a caution from economists. They doubt that the OCR will fall to the low of 4.5 per cent seen in recent years, which means adjusting to generally higher borrowing costs for the foreseeable future. It is worth noting that even as most of the recent changes in rates were reductions, a couple of increases had also come through.
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