TSB cuts home loan rates to under 6pc

TSB Bank hopes its new rates will stimulate demand for home loans.

TSB Bank is cutting its two-year fixed home loan rate to 5.99 per cent to stimulate demand for home loans.

The Taranaki-based trust-owned bank, which returns its profits to the community, said it funds its mortgage lending entirely from deposits, which have been increasing.

Managing director Kevin Rimmington said the bank was unaffected by the comings and goings on worldwide financial markets, and was determined to pass the benefits of this on to New Zealanders.

The reduction comes a day after the latest round of bank bashing by Reserve Bank Governor Alan Bollard. Bollard said he was disappointed that banks had not passed on the April reduction in the official cash rate to short-term lending rates.

"They have an opportunity to help New Zealand's recovery by doing so," Bollard said.

Rimmington said the two-year fixed rate was effectively the bank's benchmark mortgage lending product.

It was being cut because "we are getting a lot of funds into the bank" and "we have to get it back out again".

"Right now, we're experiencing record levels of funds growth."

TSB's deposit rate for two years is 5.25 per cent and the one-year rate is 4.6 per cent.

Rimmington said that up until about a month ago the bank's margin on lending was the lowest it had ever experienced.

Australian-owned banks operating in New Zealand have argued that their funding costs have risen, particularly in global markets, so they can't pass on all of the cuts in the official cash rate.

The official cash rate has been cut from 8.25 per cent to the current 2.5 per cent.

Reuters reported that New Zealand swap yields firmed across the curve today, with two-year swaps up 4.5 basis points to 3.79 per cent and five-year swaps up five basis points at 5.25 per cent. These yields influence the pricing of mortgages.

The website interest.co.nz shows that many two-year home loan fixed rates are around 6.25 per cent. Kiwibank offers 6.09 per cent and TSB Bank was at 6.19 per cent prior to this cut.

Up to 65 per cent of TSB Bank's assets go into providing home loans. The bank has nine branches outside Taranaki.

- NZPA