Westpactrust Guarantees To Hold Floating Interest

WestpacTrust is the New Zealand division of Westpac Banking Corporation, which is incorporated in New South Wales, Australia

1 February 2001

WESTPACTRUST GUARANTEES TO HOLD FLOATING INTEREST RATE

WestpacTrust is guaranteeing to hold its floating home loan interest rate at 8.25% per annum till the next Reserve Bank Official Cash Rate (OCR) review in mid March and is also lowering some fixed rates.

General Manager New Zealand Retail Ross Aitken said: “The stability of wholesale interest rates, reinforced by the US Federal Reserve’s interest rate drop today, means WestpacTrust can guarantee that we will not be changing our floating rate before March. After that, it may be that floating rates could even fall again. We are also lowering some fixed rates, because global long term wholesale rates have dropped this week, and are introducing a special nine month rate of 6.99% per annum. This is the first time fixed rates have dropped below 7% since January 2000.”

WestpacTrust took a bold step in lowering its floating home loan rate by 0.25% per annum on 11 January, two weeks before the Reserve Bank reviewed the OCR, in anticipation that there would be no increase. WestpacTrust is the only major home lender to have lowered its floating rate, despite lower wholesale interest rates.

“On 11 January WestpacTrust passed on the benefit of lower wholesale interest rates to our home loan customers, who are now saving about $17 a month on a $100,000 loan, because we were confident that the Reserve Bank would not increase the OCR,” said Mr Aitken. “We took a significant financial risk but I’m glad to say our customers are reaping the rewards. If your bank hasn’t lowered your interest rate, you should be asking ‘why?’”

Mr Aitken explained that the special nine month fixed rate loan meant customers could time their loan to maximise the benefits of expected falls in the interest rate cycle. “Most fixed rate home loans are for full year periods,” said Mr Aitken. “However, we expect fixed rates will bottom out around September. The nine month term allows customers to lock in a low interest rate until that time, and then have the flexibility to fix their loan for a long period when rates should be at their lowest, rather than miss out because their fixed rate has another three months to run.”
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WestpacTrust Chief Economist Adrian Orr said: “Since November of last year, US long-term interest rates have fallen by 60 basis points (or 0.6%) on the prospect and actual delivery of lower US official interest rates. The important US Federal Funds rate has been lowered 100 basis points this January alone. New Zealand long-term interest rates (the yield on 10-year government bonds) have also declined by 60 basis points as a result.

“Looking forward, the financial market is already anticipating further US interest rate cuts,” said Mr Orr. “This anticipation means that much of the lower expected rates are already ‘priced in’ to current long-term lending rates. Further significant falls in longer-term lending rates will be possible, albeit slower to come unless of course the outlook for the US economy deteriorates beyond current expectations.

“With the US economic slowdown, it looks increasingly likely that the Reserve Bank will consider cutting the OCR by mid-2001, possibly by as much as 50 basis points (0.5 of a percent) on the back of a slower global economy. Such a reduction would imply further floating rate cuts to come. Given this general downward direction of the OCR, borrowers will do best to remain with floating rate or short term fixed rate home loans in anticipation of even lower fixed rates.”

WestpacTrust anticipated an early end to the Reserve Bank’s tightening cycle in early-January, and responded by lowering our floating mortgage interest rate by 25 basis points. No other major New Zealand retail bank has followed this lead, said Mr Orr.

ENDS

For further information, please call:

Jane Anderson
WestpacTrust Public Relations Manager
04 498 1657
025 502 325

WestpacTrust fixed home loan rates

TERM RATE CHANGE
6 months 7.25%pa No change
9 months 6.99%pa Special rate
1 year 7.25%pa -0.15%
2 years 7.25%pa -0.20%
3 years 7.30%pa -0.20%
4 years 7.50%pa No change
5 years 7.50%pa No change

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