Why have Westpac made such drastic cuts to fixed interest rates today?

When the new lending volume statistics came out in December 2012, Westpac was shown to have received a hammering. They won’t want a repeat of that.

How much of a hammering? Their new business increase was at the bottom of the ladder at 0.25% or $90M while in poll position was ANZ with a 1.7% increase or $900M. Now you can try to soften that result whichever way you like but no one likes getting smashed that badly.

The real difficulty for Westpac is that having fallen this far behind it will take a huge amount of effort to catch up and they might end up burning a lot of capital doing it. I’ve no doubt ANZ burnt a fair few dollars during 2012 by dishing out heavily discounted interest rates and cash incentives for people to come across to them (or at least not leave once the NBNZ merger had happened) and it will be interesting to see just how long Westpac can maintain the lead.

Then once they’ve caught up it’ll be hard to slow the momentum back down again because driving a bank is a lot like a driving an oil tanker — easy to keep going but hard to accelerate and hard to brake.

What does it mean for people in the mortgage market?

For existing home owners lower fixed interest rates are good news. It’s hard to argue against something that’s cheaper for longer.

For first home buyers it means housing affordability just got better and buying a house will be a little bit easier today than it was yesterday.

But like the last round of discounting that happened in winter 2012 this window of opportunity won’t last forever. If you’re currently on a floating rate (or your fixed rate is about to expire) now is as good a time as any to talk to your bank about ‘a better deal’.

About Campbell Hastie

Cam is one half of Auckland based mortgage brokers, The Go 2 Guys.

He makes a living by sharing what he knows about mortgages with people, arranging mortgages for people and then insuring people.

He doesn't claim to know everything about mortgages himself which is why he teamed up with David Mercer — hence the ‘2’ in Go 2 Guys.

He writes posts regularly on his blog and has been told he has an ability to share his knowledge in a simple and sometimes memorable way.

Feel free to comment and ask any questions. Contact Campbell Hastie m: 027 697 7789.

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