New Zealand Banks and the Economic Crisis.

December 10, 2008 by Avalon
Filed under: Banks, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ, Life in New Zealand, Property & General Investing

Ok, so I think we all know that the western world in is the financial toilet, and that governments and reserve banks are slashing interest rates and telling us to go and spend up large and do our civic duty and keep the economies ago.

But how are the New Zealand Banks behaving right now?

Some of them – pretty damn poorly in my opinion.

I currently use 3 banks – ASB who have my main accounts and my home Mortgage, and ANZ and Westpac who each have an Investment Mortgage.

Like many people, we have a few mortgages on Fixed rates, and so because of the rapidly falling base rate – we’re ending up with Fixed Interest rates higher than the floating rate – and quite a bit higher than the current fixed rate.

So, also like many people – I investigated the options for breaking those fixed loans before the current round of rate cuts last week.

Both ASB and ANZ worked out the break fee based on the difference between the Interest rate we were currently on, and the rate that they were offering at that time. The fee is then worked out based on the amount of time the fixed rate has left to run.

With ASB, it meant our two fixed rates would cost a total of $5000 to break. That is for a 1-year fix with 10 months left to go, and a 2-year fix with 17 months to go.

ANZ wanted a whopping $19,000, to break a 5-year fix with 4 years to go.

Westpac on the other hand wanted an absolutely ginormous $43,000 to break a 5 year fix with 4 years to go.

Why the big difference – well Westpac don’t calculate on the difference in the rate you are on and the rate at the time. The work it out on the difference in the rate you are on and the WHOLESALE rate – which is quite a bit lower than the rate we mere mortals pay. So you get stung – badly.

So, not having a handy $63,000 sitting around that I can throw at the banks – I’ve had to keep my Investment mortgages at the current rates. I’m not a happy bunny – but that’s the risk you take when you used Fixed Rates loans. To break without the fees, you have to do so when the Current rate (or with Westpac the wholesale rate) is the same or higher than the one you are on.

Honestly – it’s a game of chicken. You are trying to dodge between the banks and the Governor of the Reserve Bank and work out who’s going to do what, and which way you should jump.

And of course the banks don’t pass on the entire drop. Because that would be too kind.

While I don’t think we can blame the banks for the current crises (we after all spent the money collectively on one helluva shopping binge) – I do think that they are getting a nice fat bail out round the world from Governments and the entire financial sector. Would it really hurt their bottom line and shareholders if just for a while they passed on some of that goodwill to the customers of the banks??? Gave us a bit of a bail out??? Didn’t try to extort in some cases hundreds of thousands out of their customers to break the fixed rates????

After all – these are highly unusual times, and the huge and rapid drops in the Base rates are basically unheard of. In the first quarter of 2008 – rates were pegged to go well over 10%. Not drop through the floor to around 7%.

With apparently 70% of all mortgages in New Zealand being Fixed Rates – the lowering base rate doesn’t help that many mortgage holders. And because at the same time as lowing the rates, the banks are demanding higher deposits – the situation doesn’t help First Home Buyers either.

And you know the most galling bit? Both ANZ and Westpac, when we took out these loans, were desperate to snatch ALL our bank accounts from ASB. They would prove their worth they said. They would win our business! They would show us how much better than ASB they were.

All I can say is that I will remember how Westpac, ANZ and National Bank have behaved in the past few weeks, and when things change round again – as they will – and they again want to throw money at me – I will chuckle – and go elsewhere.