Lower mortgage rates unlikely - ANZ
The Reserve Bank is likely to cut the OCR further, but borrowers shouldn’t expect mortgage rates to keep pace with the cuts, it has been suggested.
Thursday, September 1st 2016, 12:44PM 
1 Comment
by Miriam Bell
ANZ has just released its latest Property Focus report and it notes that there is limited ability for mortgage rates to go much lower.
While the Reserve Bank cut the OCR by 25 basis points to take it to a record low of 2.0% on August 11, mortgage rates fell only slightly over the month.
This was because all four of the major banks opted not to pass on the full cut to borrowers.
The bank’s chief economist, Cameron Bagrie, said while at face value this is disappointing for borrowers, it’s a question of balance.
Borrowers did get some rate reduction, but depositors were the winners as some term deposit rates lifted, reflecting more competitive tension for deposits, he said.
“This is the stark reality of what happens when a nation is borrowing more than it earns and saves.
“When competitive pressure turns towards deposits (if they can’t fall too much further, then neither can lending rates), and wholesale funding costs rise, it is natural for banks to turn to the (more reliable and stable) retail funding base.”
In Bagrie’s view, this lack of ability for mortgage rates to go much lower is set to be a key feature of the next few quarters.
“We expect the OCR and wholesale interest rates to grind lower, but competitive pressure for deposits means mortgage rates will move down by less.”
ANZ expects the Reserve Bank to cut the OCR by another 50 basis points by February.
The Reserve Bank’s introduction of further LVR restrictions has given it more leeway to lower the OCR without the same degree of worrying about the housing market.
However, Bagrie said housing over-exuberance remains one of the main local economic risk factors.
Borrowing excesses, and household debt is 163% of income, in combination with valuation excesses ups the ante on a correction, he said.
“At present, that’s hard to envisage given support from migration and a curtailed supply-side response. But another year of strong credit growth would put us on notice.”
There were early, anecdotal signs of tempering market activity due to the Reserve Bank’s new LVRs, Bagrie said.
“The impact is likely to hold sway in the near term and that means some levelling out of the exuberance seen in the first half of 2016.”
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"Depositors were the winners" Yes, if you had a million in your savings account, the .03 increase that some banks offered would have given you about an extra $40 per week after tax. How many people have a million dollars in their savings accounts? If you had a hundred thousand in your savings account, you would have benefited, by about $4 per week- If I had that amount in my savings account, I'm not sure that would have made me feel like a 'winner"!!