Some Aussie banks are offering lower fixed mortgage rates in New Zealand than they offer in Australia, even as their OCR is 1% lower across the ditch

Friday’s surprise mortgage rate cuts by HSBC raises the question again about how the rates being offered in New Zealand compare with those offered in Australia, by basically the same banks.

These banks operate with a central bank policy rate of 3.0% in New Zealand (and likely to go lower), and 2.0% in Australia (and likely to hold at this level).

What is unusual about the HSBC offer is that their ‘special’ New Zealand rates are now lower than what they offer their Aussie customers.

And they are not the only bank doing that. Westpac’s 4.69% two year ‘special’ is lower in New Zealand than their equivalent rate in Australia.

Here is the current comparison:

Mortgage interest rates
August 1, 2015 Floating 1 year 2 years 3 years 4 years 5 years
New Zealand % % % % % %
   ANZ 6.24 4.89 4.99 5.59 5.75 5.79
   ASB 6.25 4.69 4.89 4.99 5.55 5.65
   BNZ 5.99 5.19 4.69 5.29 5.65 5.75
   HSBC 6.35 4.49 4.49 4.49 5.09 5.29
   Kiwibank 6.15 4.89 4.99 5.39 5.75 5.60
   Westpac 6.15 5.39 4.69 5.49 5.75 5.79
NZ average 6.19 4.92 4.79 5.21 5.59 5.65
   Swap rates 3.10* 2.88 2.89 2.96 3.05 3.17
   margin to swap 3.09 2.04 1.90 2.25 2.54 2.46
             
Australia            
   ANZ 5.63 4.54 4.44 4.54 4.74 4.74
   CBA (ASB’s parent) 5.45 4.64 4.64 4.64 4.84 4.94
   HSBC 5.45 4.79 4.79 4.79 4.79 4.79
   NAB (BNZ’s parent) 5.43 4.59 4.59 4.59 4.79 4.89
   Suncorp 5.54 4.54 4.54 4.44   4.74
   Westpac 5.48 4.89 4.79 4.89 4.89 4.79
AU average 5.50 4.67 4.63 4.65 4.81 4.82
   Swap rates 2.14* 2.04 2.09 2.19 2.43 2.57
   margin to swap 3.36 2.63 2.54 2.46 2.38 2.25
   * 90 day bank bill rate            
             
differential (NZ-AU) +0.69 +0.26 +0.16 +0.56 +0.78 +0.83

These are the carded rate differentials – negotiation can lower your actual rates, and your effective costs will be affected by incentives and fees. (Home loan fees are more pervasive in Australia, so much so that they require banks to declare “comparison rates”. The above table does not account for those costs.)

We did a similar comparison in February this year.

What this latest review shows is how much closer New Zealand clients are to getting rates similar to those available in Australia. For the two year fixed rates, the average variation is less than 0.2% and on an individual basis could even be lower here.

It also shows how much lower bank margins-to-swap are in New Zealand than Australia. This is an unexpected finding because New Zealand banks have higher net profit margins than their Aussie parents. Clearly New Zealand banks operate with substantially better cost control; they are leaner and pass on more of that efficiency to their clients than do their trans-Tasman cousins.

  Floating 1 year 2 years 3 years 4 years 5 years
  % % % % % %
NZ margin to swap +3.09 +2.04 +1.90 +2.25 +2.54 +2.48
AU margin to swap +3.36 +2.63 +2.54 +2.46 +2.38 +2.25
             
Aug-15 differential (NZ-AU) +0.69 +0.26 +0.16 +0.56 +0.78 +0.83
Feb-15 differential (NZ-AU) +1.02 +1.06 +0.92 +1.00 +1.01 +1.11

Basically, even though wholesale interest rates are higher in New Zealand, New Zealand banks offer tighter, more competitive margin pricing than their Australian counterparts.

Lets hope we can keep our advantage over them on Saturday night in the rugby.