Our appetite for longer-term fixed mortgage rates is waning, and the result is a gradual correction occurring in the New Zealand market. This is not surprising given the cost “premium” of having to cross the full interest-rate spread between short-term rates at 5.50% and a five-year rate at 8.50%. As more of our mortgage market reverts to floating rates, banks will need to find new ways to compete on price.
Banks like to use price to win new business. With floating rate products this is more difficult because when banks change their headline rates, their entire floating mortgage books reprice.
70% of mortgages in Australia are on floating rate products compared to less than 20% in New Zealand so we still have a way to go. In Australia banks use two products, both which we can expect to see launched here in the next 12 months – or maybe sooner.The first is “economiser” mortgages. These are discount variable-rate products without the bells and whistles. In Australia the standard variable rate is 5.70% and the economiser rate is around 5.3%. These are great rates when you consider that the Australian official cash rate (OCR) is 3%, versus ours at 2.5%.The second product type is “honeymoon” rates where you pay lower rates on for an initial period, usually up to three years. These products usually target first home buyers. ANZ launched a honeymoon product in New Zealand a number of years ago, which failed because of the dominance of low-cost fixed-rate mortgages. I’m expecting to see it back some time in the near future.
