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Mortgage Rates Daily Commentary
Thursday 11 July 2024  Add your comment
One bank cuts home loan rates

Westpac has cut three of its home loan terms between 10 and 25 basis points.

The biggest cut is to its one-year rate which is down to 6.89% and 7.49% for its Special and Standard rates respectively.

To see how it stacks up against other lenders check our table here where we have sorted on lowest to highest one-year rate.

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OCR: What the economists said

A compilation of the commentary arising from today’s OCR announcement.

Thursday, January 31st 2013, 4:43PM

The RBNZ left the Official Cash Rate at 2.5% and maintained the “on hold” outlook for the OCR. The review downplayed the high exchange rate and the current low level of inflation in a low-key way, while focussing on the positive economic outlook and rising house prices. We agree strongly with that set of priorities, but the review was more hawkish on inflation than we or markets thought the RBNZ would dare to be at this stage. Consequently, two-year swap rates rose 3bp and the NZD rose nearly half a cent.

As expected, the RBNZ made no change to the bottom line OCR outlook, repeating the key phrase from last December: “On balance it remains appropriate for the OCR to be held at 2.5 percent”.

Also as expected, the RBNZ acknowledged the overvalued exchange rate, the weak labour market, and the fact that inflation is currently below target. But all this culminated in only the slightest softening of the inflation outlook. Last December the RBNZ said it expected spare capacity would be “eliminated” by the end of this year and inflation would rise towards 2% “gradually”. Those key words were softened to spare capacity being “reduced” this year and inflation rising “slowly” towards 2%.

In contrast, commentary on the global and domestic economic outlooks was very bullish. On the global economy the RBNZ said “growth is set to recover”, and domestically “recent data ... suggest GDP growth is recovering.”

Importantly, the RBNZ pointed out that positive global financial market sentiment is “contributing to lower bank funding costs and some reduction in interest rates faced by households and firms.” The so-called “mortgage war” (an autonomous decline in fixed mortgage rates) means the OCR must be set at a higher level in order to maintain the same overall level of interest rates.

But the really hawkish part of this OCR review was the interpretation of the housing market and credit growth: “House price inflation has increased and we are watching this and household credit growth closely. The Bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply.” The RBNZ is acknowledging that rising house prices could provoke inflation pressure and unbalance the economy (something we agree with strongly). Perhaps the RBNZ is finally warming to the idea that house prices will continue rising in response to low interest rates, and is moving away from the sanguine view that house price inflation will moderate once housing supply increases.

The references to credit growth and financial stability were a direct invocation of the RBNZ’s new Policy Targets Agreement, which requires it to have regard to financial stability. The RBNZ has effectively issued a reminder that it has the right to keep interest rates higher than inflation targeting alone would warrant, in order to prevent excessive lending from imperilling financial stability. For the record, New Zealand is currently not in a situation of “excessive credit growth”. But recent credit data has shown a marked acceleration in lending to households, and further data at 3:00pm today may show likewise.

We agree with the RBNZ’s assessment of the economic situation, and we welcome the change in view around housing. Our key view over the past year has been that so long as interest rates remain low, house prices would rise aggressively. We have long expressed concern about the potential for rising house prices to unbalance the economy. And we have long been concerned that the Canterbury rebuild would provoke inflation pressure, necessitating higher interest rates. The way to check the emergence of these imbalances and inflationary pressures will be to lift interest rates from their current record lows. We continue to forecast an OCR hiking cycle that begins in December 2013 and extends far further than markets are currently pricing.

JP Morgan:
For some reason, markets have read the hawkish leanings evidenced in RBNZ Governor Wheeler’s first couple of rate announcements as being a passing phase, which he will grow out of in time. We attached more significance to his early comments, particularly his opening speech as Governor, which laid out the constraints within which he is setting policy: an economy with persistently weak productivity, and a growth outlook that is framed around housing market activity, which has been a source of unproductive investment and financial instability in the past. In today’s OCR announcement, the Governor kept on beating that drum, with commentary that emphasized the more upbeat trends in global news, domestic business sentiment, construction activity, and the evolution of credit conditions. Rates and currency markets, which appeared positioned for a turn toward more activist, dovish management of recent inflation weakness, have reacted accordingly.
Given the extent to which the New Zealand economy’s fortunes are tied to global conditions, the improvement in the trading partner growth outlook since the last commentary in early December obviously garnered a mention today. Better global growth has tended to be offset by NZD appreciation of late though, such that the most significant positive transmission appears not to be through export earnings, but from better financial market sentiment through “to lower bank funding costs and some reduction in interest rates”. It is notable that even on the global front, all roads lead to domestic rates and borrowing activity in the eyes of Governor Wheeler.
There is also a clear improvement in the assessment of domestic conditions in today’s commentary. As we have argued, the downside reading on inflation in 4Q should be faded given the path of the activity data, which perked up considerably over the same period. On this front, the OCR announcement notes that “recent data on business confidence and construction activity suggest GDP growth is recovering”. In contrast, in the December statement, growth was described as having “slowed”. As usual, the Canterbury rebuild is described as “gathering momentum”, and over time Governor Wheeler increasingly is tying housing market dynamics to macro outcomes, with his expectation that the “impact will be felt more broadly in incomes and domestic demand” through this year.
Indeed, the nexus between housing and the Bank’s broader mandates is holding most of the Governor’s attention at present, with higher house prices making him watch credit growth “closely”. He is particularly wary that housing fervor will see “financial stability or inflation risks accentuated”. Some of this is likely cheap talk, in that continued house price strength by itself probably would not be enough to see rate hikes. As Deputy Governor and head of financial stability Grant Spencer wrote last week in the NZ Herald, the Bank is developing a suite of macroprudential tools, which presumably will act to weaken the link between their price and financial stability mandates (a public consultation paper on this is due in March). The threat alone of macroprudential intervention may see banks temper their lending behavior, and in any case, it looks to be the combination of housing market activity and a recovery in final demand that will motivate rate hikes if necessary. On our forecasts, this will occur in the September MPS.
As with his prior announcements, the Governor clearly is not tone-deaf to the drags from currency strength, fiscal consolidation, nor to the lack of any clear improvement in the labour market. Today’s statement includes the obligatory jawboning of the “overvalued” currency, which is the chief cause of the “subdued” pace of inflation. Currency strength is acting to dull prices both through the traded goods channel, but also by preventing the rebalancing of the economy toward exports, and “undermining profitability” more broadly. While the currency is the scapegoat, and seemingly beyond the control of the RBNZ, we don’t think the Governor would put up with a weak labour market forever, and presumably part of his downplaying of that softness is because the pick-up in growth in 2013 should act to kick-start hiring.
The most important element of today’s commentary is the statement that the Governor only expects inflation to come “slowly back towards the 2 percent target midpoint”. In an otherwise hawkish statement, the level of comfort in the gradual normalization of inflation under its own steam is significant. On the currency trajectory of the data then, the Governor will likely be doing nothing on rates for most of this year. Perhaps this bias is not surprising: having highlighted all of the structural rigidities in the economy, monetary policy becomes even less of a fine-tuning instrument, and more of a defensive tool. Wheeler is operating monetary policy under the hippocratic oath of “do no harm”, and right now the greater risk of damage seems to loom from overheating housing than from persistent undershoots on inflation.

The RBNZ left the OCR unchanged at 2.5% as widely expected. The accompanying statement was broadly balanced. The RBNZ was more positive on the global backdrop, noting the improvement in both economic indicators and broader sentiment. The RBNZ remained upbeat on the domestic outlook, highlighting construction activity and upbeat business confidence readings which indicate it can expect growth to recover from the soft patch during the middle of last year. Nonetheless, the RBNZ commented on the ‘overvalued’ NZD attributing it to the persistent weakness in inflation pressures. The RBNZ expects the lift in inflation over the coming years to be “slow”.

The statement also suggests recent housing price increases and credit growth are pushing the RBNZ out of its comfort zone, and we expect that tension will build over the course of this year. The OCR is the most effective tool for dealing with housing and credit. However, given that inflation pressures remain subdued we expect the RBNZ will leave the OCR unchanged at 2.5% until March 2014. But if the divergence continues between housing/credit and (weaker) broader inflation pressures, we see a small (and growing) possibility that the RBNZ uses macro-prudential tools.

The Reserve Bank is getting increasingly worried about excess demand in the housing market and its implications for both monetary and prudential policy. The Bank could not be blunter than when it notes “house price inflation has increased and we are watching this and household credit growth closely”. In our opinion, the excesses in this market will build further. Accordingly, this will keep the central bank firmly on a tightening bias resulting in an eventual increase in the cash rate later this year.
It is important to note that not only is the Bank worried about the inflationary impact of an overheating housing market but it is also increasingly concerned by the risk that this poses to financial stability. In short, it is believed that house prices are becoming increasingly overvalued and that in the event that they correct, to more sustainable levels, this might put pressure on bank balance sheets. It is for this reason that the Bank is, in consultation with New Zealand Treasury, investigating alternative methods of “controlling” the housing market.
Of course, in the current environment, where a paucity of supply seems to be the driving force of the excess demand, it is highly unlikely that even prudential policy would contain the inflation that is building in the sector.
Housing inflation, unto itself, may not be problematic for more generalised inflation but it will become so if households again start to leverage against the increased value of the housing stock. We think housing related issues will be the number one consideration to monitor over the course of 2013.
One excess is being offset by another. Namely the strength of the NZD is acting as a counterweight to housing pressures in the overall inflation picture. To the extent that house prices are overvalued so too is the NZD. Indeed, the RBNZ explicitly notes that the currency is overvalued. The Bank, is not happy about this but, clearly, cutting interest rates is the wrong thing to do in an environment where already negative real mortgage rates are exacerbating the excesses in the housing market.
The corollary to this is: watch out for higher interest rates if the exchange rate falters. Indeed, we do expect the currency to start wilting towards the end of this year and this is a major factor behind our view that interest rates could yet surprise on the upside.
It was notable in today’s statement that the RBNZ significantly downplayed the risks on the growth side that have been prevalent for some time:
- “Global growth IS set to recover in 2013”;
- “Global financial market sentiment IS positive”;
- “The Canterbury rebuild IS gathering momentum”;
- “and its impact WILL be felt more broadly in incomes and domestic demand”.
If nothing else the tenor of the statement thus indicates that the RBNZ is not even contemplating the prospect of a rate cut.
Interestingly, the Bank does acknowledge that “the labour market remains weak”. The implication is that it has given some credence to the questionable over-7.0% “official”  unemployment rate. There are two messages here. Even at 7.3% the Reserve Bank does not see the unemployment rate as being sufficiently soft to warrant easier monetary conditions. And, in the event that the rate does drop relatively quickly, this will put increased upward pressure on interest rates.
The Bank also acknowledges that inflation is lower than the bottom end of its target band and that it will only slowly move up toward the mid-point. It is the level of inflation and the slowness of the adjustment that will ensure the cash rate stays lower for longer. But it is the projected upward momentum that will ensure that cuts stay off the agenda.
We think that the central bank’s stance is entirely appropriate for the current economic environment. Naturally, things may change and require a shift in that stance but, for the time being, we think the Bank’s response to the current information set is entirely appropriate.
We will stick with our pick for the first rate hike in December of this year with the risks evenly weighted between sooner and later. At the same time, we think the probability that rates will remain unchanged in March is around 80%. If there was a surprise it is more likely to be to the upside than the down.
This is a view that is now not dissimilar to the market with almost no chance of a change priced for the next meeting and a 20% chance of a rate hike by September.
Market reaction to today’s statement suggests that it was a modest surprise on the hawkish side. The NZD rose around half a cent against both the AUD and USD immediately after the OCR release. Given the combination of the RBNZ’s stance here and the ailing Australian economy, we believe there is a very real risk of substantial further appreciation in the NZD/AUD in the coming months.
For the record, short-dated swaps (one to two years) also backed up around four basis points in recognition of the modest tightening bias.

« Economists surprised by Wheeler's hawkish toneSurge in lending growth for Kiwi banks »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.74 7.74 7.09 6.95
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 7.14 6.49 6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Lender Flt 1yr 2yr 3yr
Westpac 8.64 ▼7.49 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - ▼6.89 6.75 6.39
Median 8.64 7.14 6.82 6.65

Last updated: 11 July 2024 1:26pm

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