Why the banks aren't cutting mortgage rates
When is a rate cut not really a rate cut?
That is what many homeowners will be asking after the Reserve Bank cut the official cash rate (OCR) to 1.75 percent.
The banks did not do a thing. In fact, within minutes BNZ issued a statement saying why it would not be changing its rates.
BNZ's acting director of retail and marketing David Bullock said: "We are not making any changes to interest rates today and it's a good time to remind people that interest rates aren't directly or solely linked to the OCR."
Mortgage loans are funded from two main sources. One is local deposits (funds deposited with the banks by people with savings). The other source is money borrowed from offshore.
In both cases BNZ says it is having to pay a bit more for that money.
"At the moment there are more people wanting home loans than there are people saving. So to encourage and attract more deposits (people's savings and terms deposits) we need to pay a sharper return to savers."
The same goes for offshore money.
"We still need overseas funds to fill the gap, and the cost of these remains volatile."
Although the BNZ is not cutting mortgage rates, it did not specifically say that it is hiking savings rates. That's why the same advice applies as always - shop around for the best deal.
Westpac also said it would not be changing its mortgage rates.
Westpac's general manager consumer bank and wealth Simon Power said: "Ongoing rises in the cost of offshore funding provide no opportunity to lower home loan rates at this time."
Mr Power said that a "low flow" of local deposits meant the bank had to look offshore for more of the money in lends in the mortgage market.
"The OCR is just one factor in assessing interest rates. Its importance is diminished when banks need to use offshore funds to cover the gap left by a lack of local deposits."
One reason for the low flow of money into term deposits and savings accounts is that people with money to save have been looking at other options, like the share market. The further the interest rates fell for savings accounts the more shares looked attractive.
Mr Power said: "In a period of global uncertainty, a number of factors become more influential than the OCR. These include the increased cost and lack of supply in the local deposit market, exchange rate risk and the increased capital requirements for investors."
He also said that many of the bank's mortgage customers are opting to pay down their mortgages faster to reduce their debt levels, with some customers now more than three months ahead on repayments.
The Reserve Bank sent a strong signal this is likely to be the end of the line for rate cuts.
There is now a 20 percent chance of a rate cut. But it looks more likely the next move will be up, but perhaps not until 2018.
The commercial banks could soon be paying more to borrow money offshore. The US Federal Reserve could well hike rates next month.
Where rates go in the longer term is much harder to say. There are many, many, variables.
The strong New Zealand dollar and the uncertain political situation in the US are just two of the other factors that will play a role.
So too will the dairy recovery and the local housing market.
When people are talking about a potential rate hike that is over a year away, you might as well ignore the prediction. An awful lot can change before then.