Some lenders, including several in the non-bank sector that have been hit hard by the acute tightening in the credit markets, are still charging more than 10% for floating rate funds although they would argue that they compete less on price than terms.
Roughly two thirds of advertised floating rates are below 10% now and Kiwibank and BNZ (with loans linked to its TotalMoney package) are charging 8.7% and 8.99% respectively. Floating rates at these levels are competitive with the six-month and one-year rates being charged by the largest banks.
With further cuts in the OCR forecast the only way for the floating rate to go in the foreseeable future is down and economists and advisers are recommending that borrowers opt for floating or short-term rates now.
The Reserve Bank of Australia cut its official rate by an unexpectedly steep 75 basis points earlier this week (on top of a 100 point cut after its previous rate review) leading to speculation that New Zealand’s official rate might be cut by the same amount in December.
Floating and short-term rates are led by movements in the OCR and are expected to fall more quickly over coming months than fixed rates of two years or more which are more heavily influenced by the price of funds on international markets.
The New Zealand Government’s decision to set up a guarantee scheme to cover wholesale deposits should ensure that New Zealand banks are not left in the cold when trying to raise funds overseas.
But credit markets are expected to remain difficult for some time raising questions about whether fixed rate funds will maintain their popularity with New Zealand borrowers in future.
