Experts remind us that no cuts were passed on to borrowers in 2016
Experts have said that not all borrowers will benefit from aggressive mortgage rate cuts.
All five major banks in New Zealand recently cut their mortgage rates following the Reserve Bank’s decision to drop the official cash rate (OCR) to 1%. Most experts commented that paying homes off will now be easier, but some begged to differ.
Nick Tuffley, chief economist at ASB, explained that fixed rates were priced off wholesale swap rates, which had already been pricing in a 1% OCR so nothing really changed for fixed-term borrowers.
“These fixed rates are already well ahead of where the official cash rate has been. There's been a huge amount of anticipation of the official cash rate coming down,” Tuffley told Stuff.co.nz.
Read more: Broker advises homeowners to pay off debt faster while rates are low
Gareth Kiernan, chief forecaster at Infometrics, reminded that none of the OCR cuts were passed on to borrowers in 2016.
“There might be a different dynamic at play now compared with three years ago, when the Reserve Bank was cutting rates at the same time as other central banks were tightening, whereas now other central banks are easing as well – meaning that the international component of banks' funding costs is likely to be getting cheaper, and providing scope for a greater proportion of the official cash rate's reduction to be passed on than was the case in 2016,” Kiernan told Stuff.co.nz.
"Nevertheless, I note that ASB hasn't cut its deposit rates by as much as its floating mortgage rate, which implies that their overall margins will be squeezed by the cut they've announced in floating mortgage rates.”
