In a swift response to Wednesday’s Reserve Bank Official Cash Rate review, the Co-operative Bank became the first major bank to reduce its floating rate by an unprecedented -70 basis points (bps), bringing it down to 6.95%. Existing customers will see this reduction take effect on December 13, marking a significant shift in New Zealand’s banking landscape.
Shortly after, Kiwibank followed suit with a -50 bps cut, adjusting its rate to 7.25%. ASB and BNZ also joined the trend, each implementing a -50 bps reduction in their main floating rates. The Reserve Bank’s decision has prompted a wave of rate adjustments across the sector, aiming to align with the anticipated economic conditions.
Rapid Response from Major Banks
The banking sector’s quick reaction to the Reserve Bank’s rate review underscores the readiness of financial institutions to adapt to changing economic signals. Here’s a snapshot of the rate cuts and their effective dates:
| Bank | Current Rate (%) | Cut (bps) | New Rate (%) | Effective Date |
|---|---|---|---|---|
| Co-operative Bank | 7.65 | -70 | 6.95 | 13 December 2024 |
| Kiwibank | 7.75 | -50 | 7.25 | 16 December 2024 |
| ASB | 7.89 | -50 | 7.39 | 5 December 2024 |
| BNZ | 7.94 | -50 | 7.44 | 11 December 2024 |
| Westpac | 7.89 | -50 | 7.39 | 16 December 2024 |
| ANZ | 7.89 | -50 | 7.39 | 10 December 2024 |
| TSB | 7.89 | -50 | 7.30 | 10 December 2024 |
These adjustments reflect a collective effort to manage the economic impact of fluctuating interest rates, ensuring that banks remain competitive while supporting their customers’ financial needs.
Serviceability Test Rates: Enhancing Mortgage Accessibility
In addition to floating rate cuts, ASB and Kiwibank have announced reductions in their mortgage test rates. ASB’s servicing test rate for home loans will decrease from 8.10% to 7.60% starting Monday, December 2. Similarly, Kiwibank is lowering its mortgage test rate from 8% to 7.5%, effective the same date.
Key Points:
- ASB Mortgage Test Rate: From 8.10% to 7.60%
- Kiwibank Mortgage Test Rate: From 8% to 7.5%
- Effective Date: 2 December 2024
These changes aim to make home loans more accessible and affordable, providing relief to borrowers and encouraging homeownership.
Savings Rates Take a Hit
Banks are also adjusting their at-call savings rates in response to the rate cuts on floating accounts. The reductions are as follows:
- Kiwibank: -50 bps
- Co-operative Bank: Between -10 and -50 bps
- ASB: -50 bps
- ANZ: -50 bps
- Westpac: -50 bps, with additional trims to some term deposit rates by -10 to -20 bps
Summary of Savings Rate Cuts:
| Bank | Savings Rate Cut (bps) |
|---|---|
| Kiwibank | -50 |
| Co-operative Bank | -10 to -50 |
| ASB | -50 |
| ANZ | -50 |
| Westpac | -50, with additional trims to TD rates |
These adjustments reflect banks’ efforts to balance their cost structures while responding to the overall economic environment.
Flexibility and Negotiation: Key for Savers and Borrowers
While the floating and savings rate cuts are significant, banks are emphasizing flexibility in their rate offers. Customers are encouraged to negotiate terms based on their financial profiles. Factors such as loan-to-value ratios (LVR) and property valuations play a crucial role in determining the extent of rate flexibility.
Tips for Customers:
- Negotiate Rates: Engage with banks to secure the best possible rates based on your financial standing.
- Understand LVR Implications: Higher LVRs may limit flexibility in rate negotiations.
- Monitor Property Valuations: Falling house prices can shift the threshold for low equity premiums.
Banks are leveraging advanced tools to assess property values and financial health, ensuring that their offers remain competitive and aligned with market conditions.
Impact on the Banking Landscape
The rapid rate cuts across major banks signal a proactive approach to managing the economic implications of the Reserve Bank’s decisions. By adjusting both floating and savings rates, banks aim to maintain profitability while supporting their customers’ financial well-being.
Economic Implications:
- Consumer Spending: Lower interest rates on loans can stimulate spending and investment.
- Savings Incentives: Reduced savings rates may encourage customers to seek alternative investment options.
- Bank Profitability: While rate cuts can attract more borrowers, they also narrow profit margins on loans.
Customer Considerations:
- Loan Affordability: Lower rates can make borrowing more affordable, but it’s essential to consider long-term financial commitments.
- Savings Strategy: Customers may need to reevaluate their savings strategies in light of reduced interest earnings.
- Financial Planning: Engaging with financial advisors can help navigate the changes and optimize financial outcomes.
The Road Ahead: Continuous Adjustments and Monitoring
As the economic landscape evolves, banks will continue to monitor and adjust their rates to align with broader economic trends and regulatory guidelines. Customers should stay informed about these changes and proactively manage their financial strategies to benefit from the shifting rates.
Upcoming Rate Adjustments:
- Westpac Fixed Rates: Further trims expected between -10 to -20 bps.
- Other Banks: Potential for additional rate cuts as the economic situation develops.
Banks are committed to providing transparent and timely updates, ensuring that customers are well-informed and can make strategic financial decisions.
