The sharp falls in wholesale interest rates in the past week point to a new round of lower fixed-rate mortgage specials from the banks

Regular readers will know that swap rates have fallen sharply in the past week.

The two year swap rate that was 2.86% at the start of the year is today at 2.59%.

The five year swap rate that was 3.28% at the start of the year is today at 2.82%.

Respectively, those are a -27 bps and -46 bps falls.

For the ten year swap rate we have seen a -53 bps fall. The ten year swap rate is near its all-time low (which was reached yesterday).

Counteracting these falls have been rises in CDS spreads – the costs of ‘insuring’ for bank risk that investors now demand, has spiked higher recently.

But despite that, the wholesale money cost reductions are too big to just hang out there. The competitive impulse of the New Zealand mortgage market is too strong for at least one of our retail banks to not break ranks to grab some hard-to-find market share.

In November 2015, SBS Bank launched a 3.99% one-year fixed rate. It did that when the one year swap was 2.72%. Today it is 2.58%.

In October 2015, HSBC launched a 4.25% two-year fixed rate. It did that when the two year swap was 2.73%. Today it is 2.59%.

So lower ‘special’ fixed mortgage rate offers are very much on the cards.

We expect lower carded rates might hit the market as early as next week, especially if the recent fall in swap rates is sustained.

And if borrowers hold off in anticipation, any drop in ‘loan volumes’ suffered by banks will encourage them to get a more attractive offer in front of clients.

No doubt, off-card rate offers are much more flexible these days. Swap plus 150 bps might be a point bankers will start talking. (In some cases, swap plus 130 bps may even be achievable with A grade financials.)

That puts rates below 4% again.

At the very long end, TSB launched its 10 year fixed rate offer in February 2015 at 5.89% when the swap rate then was 3.86%. It has since pulled that carded offer back to 5.75%. But today the 10yr swap is just 3.22%. Such margins might attract others into this specialist space.

Borrowers now have perfect conditions to negotiate very attractive rates, and sub 3.90% rates may even be possible for a two year fixed term.

Today, mortgage rates now compare across all banks as follows:

below 80% LVR  1 yr  18mth  2 yrs   3 yrs  4 yrs  5 yrs 
  % % % % % %
4.39 4.95 4.49 5.10 5.25 5.35
ASB 4.39 4.49 4.49 4.75 5.15 5.25
4.39 5.09 4.39 4.49 5.40 5.50
Kiwibank 4.39   4.49 4.85 5.25 5.35
Westpac 4.39 4.95 4.39 4.80 5.25 5.35
4.39 4.39 4.49 4.75 4.99 5.15
HSBC 4.25   4.49 4.99 4.99 4.99
HSBC 4.35 4.35 4.35 4.65   5.29
4.35 4.69 4.29 4.79 5.35 5.35

In addition, BNZ has a fixed seven year rate of 5.90%, while TSB Bank offers a fixed ten year rate at 5.75%.