Mortgage lending rates started falling again yesterday immediately after the Reserve Bank cut its official cash rate by 1.5% to 3.5% - the lowest it has been in the 10 years since the OCR was introduced.
Kiwibank was first to cut, reducing its benchmark one-year fixed term to 5.69% and its two-year rate being reduced by 1% to 5.99%.
The floating rate was cut by 0.5% to 6.49%.
Chief executive Sam Knowles said Kiwibank had already cut its rates twice this year and he expressed a determination to keep leading the market.
"The last year has been extremely volatile with fixed and variable rates pushing up to and beyond 10%. Now, there is some relief in the market and Kiwibank is pushing through the savings for borrowers as quickly as possible," he said.
SBS Bank cut its floating rate to 6.45%, the lowest rate offered by the former Southland Building Society since the OCR was introduced.
Chief executive Ross Smith said SBS was keen to move swiftly to pass on the benefits to customers as soon as practicable.
"SBS Bank is able to pass on significant rate reductions because we are not affected by the increased cost of borrowing off shore - a result of the global credit crunch."
Recent media reports have detailed how homeowners with fixed rate mortgages have been hit by large fees when they have wanted to break the fixed term to move to a lower floating rate.
Massey University director of banking studies David Tripe told the Otago Daily Times mortgage holders on fixed rates might still be better off paying break fees now before floating rates tumbled further.
The 1.5% cut in the cash rate should ensure further cuts in floating interest rates offered by banks.
Recent trends in interest rates in wholesale (interbank) markets suggested there would also be lower fixed rates.
"In due course, we will start to see fixed rates for longer terms higher than for shorter terms and all fixed rates higher than floating rates. When that starts to happen, it may be an indication interest rates have stopped falling and that they might be going to start to rise again."
Many customers still had home loans on fixed rates and for those people the decision was whether to pay increasingly large fees required to switch to the floating rate or to a lower fixed rate, Dr Tripe said.
The lower the floating rate or corresponding shorter term fixed rate dropped, the bigger the bank fee.
"What the banks have been saying, or should have been saying, is that it may be cheaper to break your fixed rate now than it will be tomorrow or next month."
What customers had to factor in was the fixed rate they were on now and how long it was locked in for, so they could calculate whether the cost of the break fee would be compensated by reduced loan payments, he said.
Massey's professor of property, Bob Hargreaves, said the cut in the OCR might not be the boost the housing market needed to bring it out of a slump.
The overall momentum for the housing market was still downward.
With unemployment expected to increase this year, people were being much more cautious.
"The cuts will reduce the stress on householders when they renegotiate their mortgages and may encourage more first home buyers to enter the market."
But there were other factors. Banks were hoarding cash and issuing fewer loans.
New Zealand banks relied on expensive imported capital.
First home buyers were faced with much higher deposit rates, Prof Hargreaves said.
Westpac acting chief executive Bruce McLachlan said Westpac was aware of the responsibility it had as a major bank and was committed to doing what it can to support its customers as well the economy.
Finance Minister Bill English said yesterday Kiwibank could expect to hear from the Government about its high mortgage loan break fees.
The bank is Government-owned but Mr English indicated he would not be moving to require other banks to lower fees.
"We would be expecting to be discussing [the fee issue] with them at some stage," he said.
At a glance
A Kiwibank customer with a $200,000 loan taking the new two-year rate of 5.99% would save $150.51 a month than if they had taken two-year rate of 7.19% on January 1, 2009.
A Kiwibank customer with a $200,000 loan on the new floating rate of 6.49% would save $122.32 a month compared with the 7.45% rate which applied on January 1.
If that customer kept their repayments the same, a 25-term mortgage would be reduced to 21.5 years and they would save a total of about $79,000 in interest payments.
