Some shorter term rates have been reduced, but non bank lenders seem to be having difficulty with the cost of longer term funding and several are now charging 10% or more for fixed rate loans over five years.
The major banks are all charging less than 9% over this term, and banking sources say that the contrasting moves in the market reflect the varying ways in which lenders raise funds to lend. The implication is that the banks may be in a stronger position in the mortgage market than smaller competitors in future, unless conditions in the wholesale markets improve.
Banks are able to draw on retail funds from savers, whereas smaller competitors fund mainly from the wholesale markets. Some smaller lenders also fund through private investors, from debentures, a form of retail investment where confidence has been badly knocked following the collapse of debenture-based finance companies.
Wizard Home Loans, part of the GE Money group, has withdrawn its five year rate altogether. Michelle Harrison, GE Money head of communications, says: "We have been experiencing significant spikes in longer term fixed rate funding. We do not believe that the causes of this volatility will remain for the long term, however the significant increase in funding costs for fixed rate periods of more than three years has resulted in us taking the view that for the immediate future we are better to withdraw from fixed terms of more than three years.
"We believe other lenders will also been experiencing similar increases. We will continue to review this and will quote a five-year rate if required, but will not advertise these rates till the volatility reduces.
Global Home Loans is among lenders charging 10% or more for five-year fixed rate money. Global draws funding from GE. The lender says that five-year loans form a small part of its lending overall and that it does not aim to compete on rates.
David Williams, general manager, New Zealand Liberty Financial, which markets low-documentation and other specialist lending products through brokers, says that Liberty has retained its three and five-year rates but adds: "Like all other financial institutions, we have had to take into account the cost of offering these products as the credit markets remain challenged."
Among the major banks, Westpac has withdrawn its two and three-year capped rate products from the market. Mike Davy, senior product manager, housing, explains: "We found that most demand has been in the one-year term."
Borrowers were willing to commit themselves one year ahead, but less inclined to do so over two and three years.
At present, borrowers taking the one-year capped rate pay 10.3%. The rate cannot increase beyond that level but can fall if the floating rate falls below 10.3%.
