Banks in battle to cut rates

Kiwibank slashed their rates amid rising competition in the home-loan market.

Westpac could join a mortgage-rate battle after Kiwibank and ANZ slashed their rates amid rising competition in the home-loan market.

And there's more good news for borrowers, with a banking expert saying rates may track lower, possibly below 5 per cent.

ANZ made big changes across its fixed rates at the weekend, including cutting its 4-year fixed rate by three-quarters of a percentage point from 6.49 per cent to 5.75 per cent.

That change would save borrowers $50 a week on a $400,000 loan over 30 years.

ANZ's one-year and two-year fixed rates plunged from 5.99 per cent to 5.59 per cent, while its two-year special remained unchanged at 5.39 per cent.

Kiwibank followed on Monday, cutting three of its rates.

Its one-year standard rate fell to 5.39 per cent from 5.59 per cent and its five-year rate dropped from 5.79 per cent to 5.60 per cent.

Asked whether Westpac would react to its competitors' changes, a spokeswoman said: "We're considering our options."

Westpac's standard one, two and three-year rates are set at 5.99 per cent.

The last big rates move came in February when TSB offered a 10-year fixed rate of 5.89 per cent, prompting other banks, including ASB and HSBC, to go lower.

ASB's head of home lending, Vince Clark, said New Zealand's home-loan market continued to be competitive and rates were constantly under review.

"We encourage customers to discuss their individual situation with us to ensure the term and structure of the loan meets their personal needs," Mr Clark said.

Favourable wholesale interest rates - what banks pay to access funding - are helping keep mortgage rates at some of the lowest levels New Zealand has seen.

The flip-side to the interest rate environment is that savers are facing falling returns on bank deposits.

Massey University's David Tripe said there was scope for mortgage rates to continue to fall.

"Lending rates haven't gone down far enough yet to reflect the reduction in bank funding costs," Mr Tripe said.

There was potential for the major lenders' mortgage rates to drop below 5 per cent, provided wholesale funding rates, at medium maturities, continued to fall, he said.

Meanwhile, speculation is growing that the Reserve Bank may cut the official cash rate, which has a big influence on mortgage rates, next month.

Craigs Investment Partners analyst Mark Lister said the Government's newly announced tax crackdown on property speculators - combined with the Reserve Bank's moves to combat house price inflation through lending restrictions on property investors - had increased the chances of the official cash rate moving lower.

"I think the chances of that happening have gone up significantly compared with where we were a week ago," Mr Lister said. "There's a whole lot of things that tell us the Reserve Bank should consider cutting the OCR but the big one on the other side is the Auckland property market and I think that's been the main hurdle [in cutting rates].

"Now that they're coming up with some other tools, on the Reserve Bank side and the Government side, that could open the door to them cutting rates."