Home loan star ratings: credit squeeze bites Kiwis

media release

10 November 2008 FOR IMMEDIATE RELEASE

Global credit squeeze bites Kiwi home owners

CANNEX releases home loan star ratings report today.

Home borrowers across the country are picking up the tab for the extra costs lenders are being forced to pay on the volatility of the global wholesale money market.

Dwindling wholesale money supplies, higher prices and more internal competition for that money has meant that interest rate rises on home loans have become less aligned with the official cash rate dictated by the Reserve Bank (RBNZ).

“As the global crisis deepens, lenders have seen their profit margins squeezed to such an extent they have been forced to take drastic action,” CANNEX financial analyst Frank Lopez said.

Further rate cuts are on the cards but at this stage, banks are reluctant to commit to passing the full rate cuts on to customers.

CANNEX notes that in July 2007, just prior to the onset of the credit crunch, the major banks’ average standard floating rates were 1.68% above the RBA cash rate.

This had increased to 1.82% by the start of 2008, and has recently widened further to a 2.36% margin.

“Most lenders claim to be absorbing these added costs but they are increasingly being passed on to borrowers, as lenders focus on remaining viable in this volatile financial environment,” Mr Lopez said.

According to CANNEX, funding costs on the wholesale markets along with the increasing difficulty in obtaining those funds is proving a headache for our financial institutions which are busy trying to reduce the debt burden on their balance sheets.

Lenders tend to use the 90-day swap rates as a guideline on home loan pricing, as this measure reflects the cost of funding for them.

Early this year, the 90-day rate indicated the market expected the RBNZ to continue increasing the cash rate.

A sharp turnaround was experienced around July-August with 90-day rates showing expected decreases in the cash rate.

“Earlier in the year, the margin between home loan rates and the 90-day swap rate was much narrower, suggesting lenders were absorbing some of the increased funding costs,” Mr Lopez said.

“In subsequent months we have seen lenders increase their rates in order to restore their long-term margins.

“As bad and uncertain as the situation currently is for home owners, the fact that we have such a competitive banking system is protecting borrowers from regular and frequent rate rises,” Mr Lopez said.

CANNEX today released its home loan star ratings report to provide consumers with a list of home loans which may be suitable for their purposes.

CANNEX researched and rated 220 home loans, awarding five stars to those offering superior value.

Consumers can download the CANNEX mortgage star ratings report free on www.cannex.co.nz

ENDS

Full release with charts (PDF)
Cannex home loan star ratings (PDF)

About CANNEX:
CANNEX provides New Zealand’s only fully interactive online research service in retail and business finance.

Founded in 1992, CANNEX (Aust) Pty Limited is Australia and New Zealand’s premiere researcher of retail finance information for over 350 institutions such as Banks, Building Societies, Credit Unions, Finance Companies, Brokers, Mortgage Originators, Life Companies and finance related Internet Portals.

CANNEX customers use the extensive database for competitor analysis as well as a means of disseminating their product range.

CANNEX also distributes this information to print and electronic media for publication and to Agents, Accountants, Brokers and Internet Portals for use in advising their clients.

Does CANNEX rate other product areas?
YES, CANNEX also rates deposit accounts and credit cards.

These star ratings use similar methodologies to guarantee quality, transparency and consistency.

The use of similar star ratings logos also builds consumer recognition of quality products across product categories.

Please access the CANNEX website at www.cannex.co.nz if you would like to view the latest reports from CANNEX.

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