Other banks expected to follow ANZ cut

ANZ National Bank has slashed its variable home mortgage rates - putting pressure on other banks to follow suit.

The bank yesterday announced its special variable floating mortgage rate of 5.69 per cent would be extended to include everyone as the standard rate.

Other banks, including ASB, Westpac and Kiwibank, are expected to lower their rates after ANZ's move.

However, economists warn it will only be a few months before rates are put up again.

Banking expert and director of Massey University's Centre for Banking Studies David Tripe said the move would "certainly" get the top banks to improve their rates.

However, those rates were not expected to stay, given the high fixed mortgage rates many banks had on offer.

"The longer-term rates are rather higher and so that's the expectation - that the [variable floating mortgage] rates are set to go higher also," Dr Tripe said.

Other banks already show almost similar figures to their variable floating rates. However, Dr Tripe said competition - and likewise the pressure to cut rates - began when the announcement was made.

ASB Bank's residential variable floating rate stands at 5.75 per cent, Kiwibank's standard rate is 5.79 per cent, National Bank's is 5.75 and Westpac offers a standard variable floating rate of 6.29 per cent.

Economics writer Bernard Hickey said the fact that variable floating rates across the board were lower than two-year and fixed rates was a historical shift.

Up to three-quarters of people in the country had a fixed rate deal, he said, in contrast to Australia where most people had a floating rate deal because the official cash rate was lower.

The fall in variable rates meant there would be an almost immediate increase in the number of people looking to buy a home, to go for the floating rate option, Mr Hickey said.

That move, he warned, could be dangerous. "More banks are offering a lower floating rate than a fixed rate [so] more people will look at a floating rate as an option in the long-term."

But he warned: "They have to be careful because as soon as the official cash rate moves up, so does the floating rate."

Meanwhile, the Reserve Bank's announcement on the official cash rate on Thursday is expected to bring no change. The OCR is at 2.5 per cent and by the end of June, economists predict that the median forecast will be at 3 per cent.