Stacy Squires / Stuff
Banks have increased their mortgage rates faster than their deposit rates.
People with bank deposits are getting half the return they were two years ago, but there could be some good news on the horizon.
As falling interest rates eased the burden on borrowers, Covid has been tough on savers, and people with cash in the bank have faced negligible returns, Reserve Bank data shows from New Zealand Te Pūtea Matua.
The central bank on Wednesday raised the official treasury rate (OCR) by 25 basis points, prompting ASB and ANZ to raise some of its savings and mortgage rates by a similar margin.
Independent economist Tony Alexander has said that since the start of the Covid pandemic, the gap between term deposit rates and mortgage rates has widened, and it was capitalism at work.
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“Banks have no shortage of cash to lend, so they don’t need to compete aggressively,” says Alexander. “They are inundated with funding. “
But Infometrics economist Brad Olsen says local deposits will become more important to banks when they face higher capital requirements next year.
In October 2019, the average one-year standard home loan was 4.35%, compared to an average six-month term deposit of 2.73%, a difference of 1.62 percentage points.
But after aggressive OCR cuts by the Reserve Bank, the spread between the six-month term deposit rate and the standard one-year mortgage rate had widened to 2.5 percentage points by October of this year.
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Reserve Bank Governor Adrian Orr expressed concern in August about the situation recent homebuyers might find themselves in, and since then prices have been rising rather than falling.
Improving margins between the cost of bank funding and the rates at which banks can lend money was cited by Westpac and ANZ when they reported strong profits several weeks ago, realizing after-tax profits of $ 1.01 billion and $ 1.91 billion respectively. .
It wasn’t just the Reserve Bank that helped flood banks with cheap finance, Alexander says.
Nervous households and businesses have increased their savings in banks as an insurance against hard times.
“People like the flexibility of money in the bank,” says Alexander.
The difference between loan and deposit rates is just capitalism at work, he says.
These data showed that a depositor with an average of six months in October was getting just over 48% of the return he was getting two years earlier, despite a sharp rise in inflation, pushing the real return deep into territory. negative.
Infometrics economist Brad Olsen has tracked the gap between depositors and borrowers, using a slightly different metric.
“I examined a fixed year [home loan] and one-year term deposit rates, ”he said.
Mortgage rates were “special” rates for people with more than 20% equity in their home.
“What they show is that savings rates fell more than lending rates during the Covid period, as other sources of funding made banks less dependent on deposit funds,” Olsen said.
But depositors may soon become more important to banks, and that could lead to a better deal compared to borrowers.
“As deposits will become more important to banks in the future, we would expect there to be upward pressure on rates for term deposits and the like. But, given the inflation situation, term deposits will always lead to a loss in terms of real purchasing power, ”said Olsen.
The spreads between six-month deposit rates and interest charged by banks on credit cards and overdrafts also widened between October 2019 and October 2021.
Borrowers using banks’ two-year average fixed-rate standard home loan were paying an average of 4.41% in October, up from 4.22% in October this year.
The average effective interest paid by borrowers with interest-bearing debt on their cards fell from 17.8% to 18.1%, over the same period.
The average overdraft rate for SMEs fell from 9% to 8.35%.