Mortgage rates higher here than Oz: are we being ripped off?

Business Editor·NZ Herald·

10 May, 2019 05:47 AM5 mins to read

Bank's mortgage rates remain higher in New Zealand despite the cash rate being the same. Photo/File.

Kiwi banks have dropped mortgage rates in the wake of the official cash rate cut but many still remain above the rates being offered in Australia despite the cash rate now being on par in both countries.

On Wednesday the Reserve Bank of New Zealand cut the official cash rate from 1.75 per cent to 1.5 per cent - the same as Australia's cash rate.

Major banks have trimmed their floating rates by 10 or 15 basis points and some fixed rates but haven't passed the full rate cut on to customers and the gap between the floating rates of the Australian-owned banks and their parents remains at least 50 basis points.

Sam Stubbs, managing director of KiwiSaver provider Simplicity, believes the difference in rates means Kiwis are being ripped off.

"The Aussie owned banks have a pretty settled market share, with little real competition. Deutsche Bank commented recently that they've never seen a market so dominated by so few banks.

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"So without colluding, they know they can charge Kiwis more than in Australia, where there is more competition."

Stubbs said on a wealth adjusted basis, the New Zealand arms of the Australian banks made 20 per cent more from an average Kiwi than their equivalent Aussie.

"New Zealand has consistently been the most profitable 'state' in Australasia for all four banks, even though we are the second poorest per capita."

Stubbs said the small size of Kiwibank meant it was a "one armed boxer in the ring with four heavyweights."

"They are too small to have a competitive effect on the Aussie owned banks."

"The Aussies have set up a giant milking machine here in NZ, lining us up and extracting over $14m in profits every day.

"It's glossed over with cheesy billboards and advertising, but it's actually a bone fide rip off of ordinary New Zealanders."

But others are not convinced.

Jose George, general manager of New Zealand for research and rating firm Canstar, said
he didn't believe New Zealanders were being taken advantage of.

"I don't believe they are being ripped off."

"Part of it is funding, part of it is market dynamics. In New Zealand the banks are much more reliant on depositor funds - the trade off is we are getting better deposit rates."

George said New Zealand banks were more reliant on retail deposits to fund their lending businesses and that cost was passed on to mortgage holders.

While borrowers paid more here, depositors also received higher interest in New Zealand than in Australia, George said.

He said it was also down to it being more expensive for New Zealand banks to borrow money in the wholesale market due to the size and risks of the New Zealand economy.

George said the floating rate was probably lower in Australia because of greater competition in that space with most people on floating rate mortgages.

"New Zealand is so fixed rate focused."

Bruce Patten, a mortgage broker with Loan Market, said he was disappointed the banks didn't pass on the full cut to floating rate customers.

"I would like to have seen them pass on a bit more on the floating rate rather than 0.1 or 0.15 percentage points."

Patten said it was hard to compare rates across the two countries as there were multiple factors which could affect the rates.

He said 90 per cent of the loans in Australia were on floating rates where as around 80 per cent of mortgages in New Zealand were on fixed terms.

"I think the market in New Zealand has been driven towards fixed."

Patten said different policy requirements including how much capital the banks had to hold would impact the borrowing costs of the bank and the rates.

"There are so many variables that go into making that up. I don't think you can easily compare on a country to country basis."

The banks said the difference was down to the individual markets.

Craig Sims, ASB executive general manager retail banking, said rates between New Zealand and Australia differered as a large number of factors outside of the OCR influenced them.

"Most notably, fixed rates are priced primarily off domestic wholesale markets which operate separately to the OCR and differ between the two countries."

Sims said Australia had different rates offerings between owner occupied and investor Loans, and also between customers paying principle and interest versus Interest only.

"This also makes direct comparison difficult. ASB regularly reviews rates and we are committed to maintaining a competitive offering and supporting our existing and future home owners."

A Westpac spokesman said: "The two markets are structurally significantly different. These differences include wholesale funding costs, liquidity rules, capital costs and the structure of both the deposit market and mortgage market."

An ANZ spokesman said: "We're not in the same market which means we have different cost of funds, market behaviour, pricing and margins, and underlying economic conditions."