All five major banks have now announced cuts to their mortgage rates following the Reserve Bank’s decision to drop the OCR to 1%.
ASB was first to announce cuts to its variable, Orbit and 2-year fixed rates, and has since been joined by ANZ, BNZ, Kiwibank and Westpac.
ANZ lowered interest rates on its floating and flexible home rates by 0.50%, and says that it will ‘cautiously’ review its deposit rates. Westpac reduced its choices floating rate by 45bps, and its revolving choices every day rate by 40bps; Kiwibank cut its variable, revolving and offset rates by -0.50%; and BNZ dropped both its fixed and floating rates.
Craig Pope, mortgage adviser at Pope & Co Mortgages says that while the rate cut is undoubtedly good news for borrowers, it is also something of a ‘double-edged sword’ for those who may not be able to reap all the benefits of the low interest environment.
“The hardest thing for mortgage advisers is educating borrowers around what the cut means, and explaining that their rates won’t be automatically dropping by half a percent overnight,” Pope told NZ Adviser.
“There’s a lot more complexity to it than that, so it’s a bit of a double edged sword – we have clients who have been holding off to see if rates drop further, so we need to help people understand the dynamics in the background.”
“Borrowers who are already on a higher fixed rate also think that they can automatically drop to a lower rate, so we field a lot of calls trying to explain the dynamics around that,” he added.
“The banks are still tight with their criteria, and their servicing calculators remain quite strict. Getting a loan is still quite challenging, especially for low-deposit borrowers.”
Pope says that one potential outcome may be a rise in investment property purchasers, as those with savings and equity will look to maximise their returns beyond what the low interest rates can provide. Rental properties may become an attractive option for that category of buyer, and they won’t face the same hurdles with the main banks as first-time buyers.
“People who have equity might consider rental properties as a way to deliver a better rate of return, so it’ll be interesting to see if there’s an uptick in investment property purchases,” Pope said. “Those people tend to be quality borrowers and don’t face the same challenges in accessing credit, so that could definitely be one outcome.”