Yesterday, the Reserve Bank cut the Official Cash Rate (OCR) by a whopping 0.5%.
This is big. A couple of weeks ago only a few economists thought a 0.5% cut was on the cards.
It takes the OCR down from 5.25% to 4.75%. The second cut this year … and it might not be the last.
So, what does it mean for your mortgage interest rate?
How fast will mortgage rates go down?
A day before the announcement, banks started dropping rates.
ANZ slashed its 1-year fixed rate to 5.59%. To be clear, this isn’t an advertised rate. But, it’s how low they are willing to discount their rate behind the scenes.
It’s a big discount. 0.6% below their current advertised rate of 6.19%.
I need to issue a wee correction. In yesterday’s email, I said that this rate is only available through mortgage brokers.
I’ve had confirmation through ANZ that this is also available directly through the bank as well.
It’s not publicly advertised, and they’re calling it a “limited-time discretionary rate”.
That means it’s not going to be around forever … but it shows how far banks can cut their rates.
The other banks have also moved.
Most are dropping their floating rates.
How can a bank cut their rate by 0.6%?
You might wonder how a bank can possibly cut its rate by 0.6%.
Well, they have quite a bit of margin to work with.
The 1-year swap rates have fallen. Think of these as what it costs the bank to borrow to lend to you and me.
At its peak, the 1-year swap rate was 5.9%. Now, it’s closer to 4%.
So, the 1-year wholesale rate has fallen 1.9%.
But ANZ’s advertised 1-year rate has only fallen 1.2% from the peak.
It was 7.39% at the start of the year. Now it’s 6.19%.