KEY POINTS:
Kiwibank says customers should take advantage of recent mortgage rate cuts sooner rather than later as this might be as good as it gets for some time.
The state-owned bank, whose marketing has become noticeably more aggressive in recent weeks, cut its key two-year fixed mortgage rate from 9.29 per cent to 8.99 per cent just a few weeks after cutting from 9.60 per cent last month.
Mindful of the increasing pressure on households, Kiwibank's 8.99 per cent rate is only available to borrowers with at least 20 per cent equity in their home.
Kiwibank's Australian-owned major rivals have also cut their rates in the past two weeks as grim economic data saw money markets begin to price in increasing chances of Reserve Bank rate cuts.
Yesterday, ANZ National Bank, ASB Bank, Bank of New Zealand and Westpac all said they had no immediate plans to follow their smaller competitor's lead but would continue to review their rates.
Kiwibank chief executive Sam Knowles was not expecting "significant" further cuts in the two-year rate in the short term.
"Who knows what happens by the end of the year? There's potential that it might not fall further at all. If it's important to you to get that kind of rate locked in, lock it in while you can, don't assume that just because everyone's saying it's going to fall that it will."
Knowles said his bank as "consumer champion" chose to pass on lower wholesale money market rates straight to customers "whereas the other banks, possibly because they've got bigger portfolios and they're not out trying to get business, say 'we'll take that as profits thanks' ".
Massey University head of banking studies David Tripe said the state-owned bank was "making use of the fact that they don't have to produce anything like the same return for their shareholders".
While Kiwibank's two-year rate is now 30 basis points below its nearest major bank rival BNZ at 9.29 per cent, Knowles maintained that loans at the current level were still profitable and not "loss leading".
Meanwhile, the major banks say growing expectations of a Reserve Bank rate cut had seen rates ease on the interest rate swaps market. However the major banks also pay an additional "credit spread" above swap rates and it is this component of their funding that has blown out as a result of the credit crunch, driving a series of mortgage rate rises early this year.
Yesterday, echoing comments last week from BNZ chief executive Cameron Clyne, Westpac chief economist Brendon O'Donovan said these credit spreads were likely to remain at current levels for some time and further international financial sector shocks could see them increase further.
