State-owned bank surprises mortgage market with an off-season market leading three year rate, as wholesale rates hit record lows

Kiwibank has cut its three year fixed mortgage rate today by -20 bps.

It new rate for this term is now 4.29%.

At that level, it is now the lowest three year rate in the market, knocking off ASB who have a 4.34% rate for three years.

No other Kiwibank mortgage rate changes were announced. (But they did tweak some term deposit rates at the same time.)

This new rate is the same as they offer for two years.

Kiwibank’s hot new three year rate is the only market leading rate they have at present.

Wholesale swap rates are all at record low levels at present, opening the opportunity for banks to more finely price their fixed mortgage rates.

In fact, over the past 90 days, the wholesale swap rate has fallen from 2.31% to 2.06%, a -25 bps reduction.

Over the same period, the risk premiums have fallen as well. CDS spreads have fallen -20 bps as well.

Together, this has resulted in a -45 bps fall in bank wholesale money costs in 90 days.

But bank fixed mortgage rate carded offers have not responded in the same way. On average, bank three year fixed rates have fallen only -10 bps over the same period.

There is plenty of room for other banks to match Kiwibank.

However, one inhibition will be what banks are paying for term deposit funds from savers. These offers have fallen far less than wholesale funds. In fact, there has been very little change in the same 90 day period in what banks are offering for term deposits for terms 3 months through 24 months. On average, these terms deposit offers are 3.20% with some offering upwards of 3.35%

See all banks’ carded, or advertised, home loan rates here.

below 80% LVR 6 mths  1 yr  18mth  2 yrs   3 yrs   5 yrs 
  % % % % % %
4.99 4.25 4.89 4.35 4.99 5.30
ASB 4.75 4.25 4.25 4.29 4.34 4.79
4.99 4.25 4.99 4.19 4.49 5.15
Kiwibank 4.75 4.19   4.29 4.29 4.99
Westpac 5.15 4.25 4.95 4.29 4.49 4.89
             
4.50 4.25 4.25 4.29 4.49 4.99
HSBC 4.85 4.19 4.19 4.19 4.49 4.99
HSBC 4.50 4.25 4.15 4.15 4.65 4.99
4.75 4.25 4.35 4.19 4.59 4.99

In addition, BNZ has a fixed seven year rate of 5.55%, while TSB Bank offers a fixed ten year rate at 5.75%.