NZ Banks

PHOTO: New Zealand banks are in the business of money – making plenty for themselves

As if it’s not already hard enough to buy a home, an expert is warning banks are making more money from mortgages than a few decades ago and it’s not because of house prices.

Fergs Coffee

Nikko Asset Management managing director George Carter said banks have increased the percentage of profit they take from home loans and the floating mortgage rate is the main culprit.

The Official Cash Rate (OCR) is set by the Reserve Bank of New Zealand. It’s essentially the wholesale rate for borrowing “money”, although there are other costs too.

On top of the OCR, banks add a little bit extra to make a profit.

mortgage stress

First-home buyer ‘not very hopeful’ for mortgage rate approval as Reserve Bank lifts Official Cash Rate

Carter told The Project that a few decades ago banks were adding about 2 percent in profit but now it’s closer to 4 percent. And that’s costing Kiwis hundreds of thousands of dollars.

“If you look at the data over the last 20 years or so, if you go back to 2000, the mortgage rates were typically about 2 percent above the Official Cash Rate.

“And over time, the OCR has been dropping but the variable rate hasn’t been dropping quite so much. So now we’re in a position where that gap has widened to about 4 percent,” Carter said on Monday.

He said the gap was particularly noticeable for the floating mortgage rates.

“You’ll probably see it most keenly in the variable rate mortgage. You know, on the fixed rates, they’re priced off of what’s called the swap spreads.


MORTGAGE SHOCK COMING: NZ’s Official Cash Rate (OCR) increased to 2% | Australia’s is 0.35%

“The swap spreads at the moment, on the two year they are probably around 4 percent, just over 4 percent.

“So the banks are probably making about 2 percent on those, whereas we’re seeing on the variable rate it’s close to 4. So you definitely see it more on the variable rate mortgage.”

Carter said lots of Kiwis won’t have noticed the increase because the OCR has been steadily dropping until recently.