Mortgage borrowers not yet feeling benefit of OCR drop

Monday, 16 March 2020

The official cash rate has been cut dramatically but most mortgage-holders aren't feeling any effect of that.

The Reserve Bank cut the rate to 0.25 per cent on Monday morning, and committed to holding it there for 12 months.

Banks moved quickly to apply the cut to their floating and variable home loan rates.

ASB and BNZ both cut their variable rate to 4.45 per cent, ANZ cut its floating rate to 4.44 per cent, Kiwibank cut its variable rate to 4.4 per cent and Westpac to 4.59 per cent.

* Boost for housing market as OCR cut helps keep loan rates at historic lows

* Banks hit savers first when interest rates are falling**

But, while the banks said rates were under review, no changes have yet been made to fixed rates. Only about 15 per cent of mortgage lending is floating.

The Reserve Bank has cut but retail fixed rates haven't yet followed.

BNZ spokesman Sam Durbin said it cut its three-, four- and five-year rates last week to 3.60 per cent, 3.79 per cent and 3.89 per cent last week and had nothing further to announce yet.

Commentator Claire Matthews said the banks would be unwise not to pass on the full reduction to customers.

'We are in an extreme economic situation, leading the Reserve Bank – and the government - to take extreme measures to support the economy. It is in the banks' own interest to support the economic stimulus, as they will be affected by any downturn. However, in the current situation they also need to be seen to be supportive, and failure to pass on the full OCR cut would not be a good look.'

Economist Shamubeel Eaqub said he was not surprised that fixed home loan rates had not yet been cut. People would have to wait until the end of a fixed period to benefit from lower fixed rates, anyway.

'It's too uncertain. The big challenge is they don't know how wholesale financial markets will be operating in the coming months.'

Fixed mortgage rates were driven by both the Reserve Bank and international markets.

The United States' Federal Reserve was worried about global liquidity, he said. 'Our Reserve Bank has been relatively sanguine on this stuff, understanding how dysfunctional the market will be in the coming weeks.'

The role of the Reserve Bank should be to help keep money flowing to businesses, he said. 'No one should worry about mortgage borrowers right now. It's not a time to be buying and selling houses.'

Eaqub said the Reserve Bank needed to do whatever it could to get the country though. 'The recovery is going to be really tough.. it's a completely different market to anything we've seen before, a supply and demand shock.'