Mortgage Watch: TSB flavour of the week

TSB Bank's cut to its two-year fixed mortgage rate was the stand-out move in the market over the last week.

Tuesday, June 23rd 2009, 5:33AM

by Jenny Ruth

It cut its two-year rate by 20 basis points to 5.99%, the lowest in the market. That's 10 basis points lower than the next best rate offered by Kiwibank on loans with loan-to-value ratios below 80%. Kiwibank's two-year rate for other customers is 6.29%.

TSB managing director Kevin Rimmington says the two-year rate is the benchmark in the market.

Up until about a month ago, his bank's profit margin on two-year mortgages "was lower than it's ever been." Since then the margin has increased slightly and TSB decided to pass the benefit on to customers.

"We thought it was a chance to increase our market share," Rimmington says. As well, "we're getting money coming in at a greater rate than we're lending it out."

TSB couldn't be accused of short-changing its investors: it is offering 5.25% for two-year fixed term deposits. The only bank offering a higher rate is HSBC at 5.3%. Rimmington says TSB's six-month term deposit rate of 4.6% is the highest offered by any bank.

In the wholesale interest rates market, the two-year swap rate has risen about 45 basis points since the beginning of May while the five-year rate has risen about 60 points.

In contrast to TSB, Nelson Building Society raised its two-year fixed rate by 25 basis points to 6.5%, well above the rates offered by the major banks.

The next most significant move in the mortgage market was HSBC cutting its six-month fixed rate to 5.39%, matching Westpac's as the lowest in the market. However, HSBC also raised its two, three and four-year fixed rates by 10 basis points each to about where the other bank's equivalent rates are.

Southern Cross and Credit Union North raised their three-year rates by 15 and 20 basis points respectively to 6.9% and 6.95%, in line with what the major lenders are offering.

The government-owned Public Trust raised its four and five-year fixed rates by 15 and 22 basis points respectively to 7.5% and 7.9%, although these rates are still among the lowest in the market.

See how the TSB rate compares with other lenders here

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