Rates are slowly starting to come down since the OCR cut, but as mentioned last week, some banks have only passed on 10 points (of the 25 point cut) in there floating rates, with Westpac & HSBC still on 5.75%.  HSBC has the distinction of advertising the lowest rate (3.95% for 18 months) and the highest (5.75% floating).  The banks have continued to drop their fixed rates and specials, so there is now quite a distinction between what each bank is advertising, for example the lowest ‘carded’ floating rate is 5.45% (Co-op Bank), that’s 30 points lower than Westpac & HSBC.  We continue to get good traction in terms of discounting with the 12 month rate moving down slightly last week to 4.09% and most banks are at 4.15% for 18 months and 4.19% for 2 years.  The bank’s still have good margins on these fixed rates and I believe we will see the rates come down a bit further over the next few weeks as they strive to be competitive with each other.

After the OCR cut and the mixed reaction from banks, this has predictably sparked debate from economists and politicians as to the validity of the excuse for not passing on the full 25 points, here is a segment of an article from Bernard Hickey on the subject;

“Most economists see the OCR being cut to 2.0% by August 11 at the latest. ANZ and ASB see it being cut as low as 1.75% by the end of the year.  However, not all of the surprise cut was passed on to floating rate borrowers and initial signs are that banks are keen to hold on to some of the fall in interest rates to bolster their net interest margins. They argued that their costs of foreign funding were higher, but there’s debate about that. Banks have put their margins under pressure over the last year with aggressive discounting in fixed rate mortgages, but the prospect of hefty losses from dairy lending may be forcing the banks to blunt some of their sharper prices. Wholesale swap rates fell 20-25 basis points after the rate cut, increasing the pressure on banks to pass some or all of it on to fixed rate borrowers”

As mentioned last week the current situation is giving banks the option to differentiate themselves from the others, by either dropping the floating rate in full or by heavy discounting.  It’s interesting to note that ANZ will often discount their floating rate by 100 points to selected clients, which means a floating rate of 4.64%, with the possibility it may be as low as 4.14% by the end of the year if they pass on the predicted cuts in OCR to 1.75%.  This does make choosing the right bank for clients even more interesting and this is where I can come in and can apply my knowledge and banking experience to clarify what their best options are with the banks.  As mentioned last week I deal with experienced lending staff and I am more likely to get the best discounts from the most appropriate bank plus my services and advice is free to clients and may save them thousands of dollars in interest costs over the life of their loan.