Comparison of mortgage rates between New Zealand and the AU

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It has been over a year since we watched for the last time the difference between the mortgage rates that the Kiwis pay compared to those in Australia.

During this period, the somewhat unusual advantage of Kiwi home loan borrowers over their Australian counterparts became a slight disadvantage. This is a disadvantage all the more important as the duration of the fixed rate contract is long.

The most striking thing about the changes over the past eighteen months is that Australian rates are very similar while Kiwi rates have risen sharply. None of this is “news” for Kiwi borrowers, but it now accentuates the differences between the two countries.

This rise in the Kiwi does not appear to stem from a rise in margins, the key margin being the difference between wholesale and retail prices. In both countries, trading margins have shrunk over this long period, even as rates have risen here. They seem to have some in Australia as well, although movement there is actually quite small.

The mortgage markets in each country are quite different. The New Zealand market is over 80% based on fixed rate contracts. The Australian mortgage market is also dominated by variable rate agreements.

But it’s more complicated than that. Our mortgage contracts are relatively straightforward matters; you borrow over the term at a specified interest rate.

However, in Australia, the interest rate shown is just the start. There are plan and package fees, along with related “discounts”, to complicate matters. Their regulators require banks to publish a benchmark rate to expose the true costs involved. And 80% of all Australian home loans are tied to these opaque arrangements.

We’ve been following a mortgage comparison between New Zealand and Australia for over five years now, posting the penalty Kiwi homeowners pay compared to Australians. We last did this eighteen months ago.

Here’s the current comparison of how we’ve done it consistently since 2015:

Residential mortgage interest rates

December 31, 2021, Floating 1 year 2 years 3 years 4 years 5 years
New Zealand % % % % % %
ANZ 4.79 3.65 4.35 4.75 5.65 5.85
ASB 4.60 3.65 4.15 4.69 4.95 5.19
BNZ 4.95 3.65 4.35 4.69 4.89 4.99
HSBC Premier 4.59 3.49 4.15 4.54 4.74 4.99
Kiwibank 4.25 3.69 4.35 4.69 4.99 5.15
Westpac 5.09 3.69 4.35 4.69 4.79 4.95
New Zealand average 4.71 3.64 4.28 4.68 5.00 5.19
Exchange rate 0.96 * 1.72 2.20 2.45 2.54 2.57
margin to trade 3.75 1.92 2.08 2.23 2.46 2.62
Australia
ANZ ** 4.49 4.27 4.15 4.13 4.17 4.20
ABC (parent of ASB) ** 4.70 4.52 4.39 4.36 4.34 4.36
NAB (parent of BNZ) ** 3.49 4.20 4.11 4.12 4.11 4.19
HSBC First 2.72 2.71 2.65 2.67 2.84
Suncorp 2.81 2.80 2.84 2.93 3.20
Westpac ** 3.70 3.63 3.58 3.63 3.70 3.78
AU average 3.65 3.69 3.62 3.64 4.08 3.76
Swap rate / BBSW 0.06 * 0.34 0.84 1.24 1.30 1.60
margin to trade 3.59 3.35 2.78 2.40 2.78 2.16
* 90 day bank billing rate
** these are reduced flat rates with significant annual fees
differential (NZ-AU) 1.06 -0.05 0.66 1.04 0.92 1.43
differential in May-20 0.86 -1.11 -0.91 -0.34 -0.33 -0.15
differential in May-19 0.39 -0.14 0.00 0.07 0.09 0.30
differential in november-18 0.67 -0.12 0.21 0.35 0.79 1.05
differential in november-17 0.89 0.55 0.64 0.90 1.33 1.39
differential in january-17 0.28 0.13 0.59 0.86 0.89 0.94
differential in Aug-15 0.69 0.26 0.16 0.56 0.78 0.83
differential in February-15 1.02 1.06 0.92 1.00 1.01 1.11

Despite the rate hike in New Zealand, we still match Australia’s one-year fixed rate home loan offerings. But that’s only because challengers like HSBC and Suncorp are lowering their averages. For the major banks, we have significant advantages here for this one-year term, and we are more or less equal for the two-year term.

So our recent benchmark rate hikes only return to “average” Australian levels.

The real business reason that home loan prices are not going down in Australia is that Australian operations are expensive. Taking ANZ as an example, they report a NIM (Net Interest Margin) group of just 1.6% while New Zealand’s ANZ operations were still at 2.0%. So despite imposing higher effective rates on clients of most of their loan book (mortgages), the Australian bank ended up with a smaller NIM.

Wholesale money is needed to balance the matching requirements of the duration.

December 31, 2021 Floating 1 year 2 years 3 years 4 years 5 years
% % % % % %
New Zealand margin to trade +3.75 +1.92 +2.08 +2.23 +2.46 +2.62
AU margin to trade +3.59 +3.20 +2.65 +2.28 +2.63 +2.07
and this compares to May 2020 levels as follows …
New Zealand margin to trade +4.23 +2.50 +2.51 +2.84 +3.08 +3.09
AU margin to trade +3.49 +3.69 +3.44 +3.17 +3.35 +3.15
and that compares to May 2019 levels …
New Zealand margin to trade +4.08 +2.39 +2.47 +2.54 +2.90 +2.94
AU margin to trade +3.94 +2.78 +2.75 +2.75 +2.99 +2.82
and compares to November 2018 levels …
New Zealand margin to trade +3.86 +1.93 +2.04 +2.20 +2.71 +2.69
AU margin to trade +3.19 +2.05 +1.83 +1.85 +1.92 +1.63
and compares to November 2017 levels …
New Zealand margin to trade +3.93 +2.51 +2.42 +2.59 +3.14 +3.08
AU margin to trade +3.28 +2.21 +2.08 +2.03 +2.05 +1.98

Overall, swap margins have been tightening in both countries and have been for about two years. Lower rates have limited the practical options available to banks to “maintain” their net interest margins. But in rising markets, they have more options. And the combination of recent CCCFA restrictions and other official measures aimed at curbing house price growth, banks may have less business in 2022, so seeing margins increase may be a way to prevent their bottom line. to move back. Returning margins to what they had from 2017 to early 2020 would do that.


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