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The lure of attractive fixed home loan rates

Lenders are trying to entice borrowers away from floating rates with attractive fixed home loan rates, but will it work? Jenny Ruth investigates.

Friday, November 11th 2011, 12:03PM 3 Comments

by Jenny Ruth

A number of banks have been vying to offer the sharpest two-year fixed mortgage rate over the last couple of weeks.

TSB Bank, Westpac, Kiwibank and HSBC have all tossed some very low rates into the market with SBS Bank currently offering the lowest with its 5.65% special - that's exactly the same as its floating rate.

Other banks' two-year rates aren't that far from their two-year rates: TSB's 5.88% two-year rate is only nine basis points above its 5.79% floating rate.

Craig Ebert at Bank of New Zealand says would-be borrowers can thank the Italian crisis for this because wholesale prices have been dropping steadily since July when the wider European crisis began worsening.

The two-year swap rate, which banks use when pricing their two-year fixed mortgage rates, is "the lowest it's been since reasonable records began," Ebert says.

At below 3%, the two-year swap rate is even lower than it was in the depths of the global financial crisis - back in January and February 2009, it was about 3.25%. In July, the rate was about 3.7% and by the end of October it was 3.2%.

"In theory, that should stimulate demand for funds," Ebert says. "But no one's really wanting to borrow at the moment."

The two-year mortgage offerings are flying in the face of the strong trend for borrowers to move to floating rates. Reserve Bank figures show how dramatic this shift has been.

Back in mid-2007, two-year fixed mortgages were the most popular by far. Mortgages with more than one and up to two years to go accounted for nearly 30% of all mortgages. At the end of September this year, they accounted for just 12.2% of all mortgages.

Floating rate mortgages accounted for just 12.4% of all mortgages back in August 2007. By March this year, they accounted for more than half and by September they accounted for 57.6%.

Nick Tuffley at ASB Bank says it's a little too early to tell whether these low two-year rates will halt the trend towards floating rates.

"I suspect the proportion of floating rate mortgages is likely to steadily rise over the next few months but it may slow down a little because of how close those fixed rates are to floating," Tuffley says.

Check and compare rates in our comprehensive table. In this link we have sorted them from lowest to highest two year rate

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Comments from our readers

On 11 November 2011 at 2:12 pm BigG said:
The two-year swap rate, which banks use when pricing their two-year fixed mortgage rates, is "the lowest it's been since reasonable records began," Ebert says.

How long have banks been recording their advertised interest rates, and can someone please explain what a "reasonable record" is, and when banks began recording these records?
On 11 November 2011 at 5:35 pm James said:
I didn't find this article particularly investigative. I think the same old rules apply - no-one knows what is going to happen in the future. If fixed rates are low now, and you take one rather than the floating, you are trapped in your house because when you come to sell it you will be paying those massive break fees that banks charge. Stick to floating for now is my choice.
On 12 November 2011 at 6:06 pm Perplexed said:
James, I'm trying to figure out the logic of what your saying!?
When you fix a rate, the only time you pay a break fee is if the interest rate that you are on is higher than the current rate that you will be dropping too.
e.g. you fix today for 2 years for 6%. In 12 months you want to break. If at that time the 12 month rate is lower than 6% you will be charged the difference that the bank will lose. Conversely if the 12 month rate is higher than 6%, there will not be a break fee charged. You can fix strategically to buy time and in the future if the rates appear to be on the verge of rising you can quickly break with no penalty and refix again for another medium term. So if you fixed 2yrs at 6% today and say got 6.25% about 2 years down the track you may get an average of about 6.15% over a total of 4 years, which is far better than a 4 year rate today!
Commenting is closed



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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 ▼3.09 3.25 3.39
ANZ Special - ▼2.49 2.69 2.79
ASB Bank 4.45 2.55 2.69 2.79
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.55 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.15 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.95 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.45 2.60 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 2.65 2.79
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.54 3.54
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.79 2.79
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 3.05 2.99 2.99
SBS Bank Special - 2.55 2.49 2.49
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 ▼2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 ▼2.99 3.19 3.29
TSB Bank 5.34 3.29 3.45 3.59
TSB Special 4.54 2.49 2.65 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.49 2.69 2.79
Median 4.55 2.94 2.99 2.80

Last updated: 29 October 2020 5:00am

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