Mortgage rates hit lowest in 40 years

By KEVIN TAYLOR

Home mortgage interest rates hit 40-year lows yesterday after the Reserve Bank shaved half a percentage point off the official cash rate to help the country weather a slowing world economy.

One bank, BNZ, announced a special six-month fixed rate for new customers of 4.99 per cent.

Later in the day the ANZ went one better, with 4.95 per cent, also for six months.

All five main banks, ASB, BNZ, ANZ, National Bank and WestpacTrust, slashed their floating mortgage rates from 7.2 per cent to 6.7 per cent. .

While the rates were good news for new borrowers, they left home owners on fixed-rate mortgages counting their losses.

A household with a $100,000 debt, fixed at the 8.15 per cent rate prevailing a year ago, will pay $94 more a month than under the 6.7 per cent floating rate.

Reserve Bank Governor Don Brash yesterday cut the official cash rate from 5.25 per cent to 4.75 per cent - the lowest for two years - blaming the terrorism in the United States on September 11 for a worsening international outlook.

The new floating rates, the latest of several reductions in recent months, are the lowest for two years.

ASB calculated that the cost of servicing a 20-year, $100,000 table mortgage had fallen by $110.55 a month as a result of cuts in March, April, May and September.

The BNZ's new six-month fixed rate is available only until November 28 and ANZ's offer is open until December 14.

The last time the country saw mortgage rates under 5 per cent was 1960. Labour was in power and Walter Nash was Prime Minister.

A three-bedroom house with views in Mt Eden could be bought for £6250 ($12,500), a packet of Weet-Bix two shillings and seven pence (28c) and a 1300cc Ford Consul 315 cost £990 ($1980).

Standard fixed rates are also coming down. WestpacTrust dropped its one-year rate to 5.95 per cent - the bank's lowest in 20 years.

WestpacTrust general manager of marketing Tim Harrington estimated that it would mean a saving of $111 a month compared with the cost of a 20-year, $100,000 loan a year ago.

However, the cuts also mean lower returns for savers.

Grey Power president John Jefferson said the interest reductions would hit the elderly, who relied on small investments for a few extra dollars.

The Reserve Bank estimates its half a percentage point cut could boost economic activity up to 1 per cent.

As mortgage rates tumbled, trading on the New Zealand sharemarket rose across the board in the first few hours following the rate cut.

The Reserve Bank's action was also welcomed by the Real Estate Institute. President Rex Hadley said it set the industry up well for good sales in spring and summer.

Alasdair Thompson, chief executive of the Employers and Manufacturers Association northern branch, said the bank was on the right track.

He hoped business would examine investment opportunities that might become viable with lower interest rates.