Banks start cutting mortgage rates after OCR lowered for first time in over two years

Banks have started lowering their mortgage rates after the Reserve Bank lowered the official cash rate to 1.5 per cent, the first cut in the OCR for more than two years.

Source: Breakfast

The OCR had been stuck at 1.75 per cent since late 2016 until the announcement this afternoon.

Within moments of the announcement, ANZ said it will lower the rates on its floating and flexible home loans by 0.10 per cent and reduce its leading fixed-term rates 0.06 per cent to 0.14 per cent.

The new rates will take effect from May 13 for Fixed rate home loans and new ANZ Floating and Flexible rate home loans, and May 27 for existing Floating and Flexible rate home loans.

"As New Zealand’s largest home lender, we’re committed to helping Kiwis into their own homes," said Antonia Watson, ANZ managing director retail and business banking.

"Since the last OCR cut in 2016, fixed home loan rates have fallen steadily independent of any cash rate change. For example, in March 2017 ANZ’s one-year fixed-rate special was 4.39%, while the new special one-year rate will be 3.89%," she said.

"We’ll be reducing both Floating and Fixed rate loans so the greatest number of customers will benefit from lower loan rates. More than 80% of our home loans are fixed rate."

A statement from the Reserve Bank  said the Monetary Policy Committee decided a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit.

"Global economic growth has slowed since mid-2018, easing demand for New Zealand’s goods and services. This lower global growth has prompted foreign central banks to ease their monetary policy stances, supporting growth prospects.

"However, there is uncertainty about the global economic outlook. Trade concerns remain, while some other indicators suggest trading-partner growth is stabilising," it read in part.

Employment figures also factored into the decision.

"Employment is near its maximum sustainable level. However, the outlook for employment growth is more subdued and capacity pressure is expected to ease slightly in 2019. Consequently, inflationary pressure is projected to rise only slowly.

"Given this employment and inflation outlook, a lower OCR now is most consistent with achieving our objectives and provides a more balanced outlook for interest rates."

ASB chief economist Nick Tuffley said a rate cut is probably needed and would help lift the economy and help the RBNZ meet its inflation target.

"The cooling growth outlook points to a sizeable risk that core inflation will retreat further.

"We are also becoming more concerned that cooling growth momentum is likely to translate into increasing labour market slack within the economy," he told RNZ.

Recent data has shown the economy has slowed over the past year to about 2.3 per cent annual growth, with sluggish growth in retail spending, a cooling housing market, inflation sitting at 1.5 per cent, but unemployment is still close to decade lows.

Good news for home buyers but not savers

ANZ's Antonia Watson said the current extreme low interest rate environment not only represents an opportunity for new home buyers to enter the market, but for existing home loan customers to pay off as much of their debt as possible.

While the cuts in mortgage rates is good news for home buyers, savers will be getting less on their money in the bank.

ANZ will reduce interest rates on term deposits between 0.15 per cent on 90-day deposits and 0.25 per cent on 60 and 120-day investments. ANZ’s Serious Saver will be reviewed at a later date. 

"It’s important that people maintain healthy savings, but a lower cash rate will impact on deposit interest rates. We’re concerned that savers might seek higher interest rates through riskier investments and savings options," Ms Watson said.

"Lower deposit interest rates will also be a concern for the elderly who rely on interest income in retirement."

Ms Watson said that while the OCR cut was expected, it might prove less effective in stimulating the economy than in the past.

"Capacity constraints and rising costs for businesses, and low interest rates globally might take some of the edge off the OCR’s effectiveness," she said.