Westpac cuts fixed mortgage rates as competition intensifies in New Zealand’s housing market

WELLINGTON, New Zealand — Westpac, New Zealand’s largest bank by market share, has reduced some of its fixed-term home loan interest rates, marking the first significant rate cut by a major lender in nearly a year. The adjustments, effective immediately, apply to select two- and three-year fixed mortgage terms, with reductions ranging from 0.10% to 0.25% depending on the loan type. According to internal bank documents obtained by financial analysts and confirmed by Westpac’s retail lending division, the moves come as pressure mounts from rival banks and the Reserve Bank of New Zealand’s (RBNZ) latest signals that official borrowing costs may have peaked.

The rate cuts follow a period of aggressive competition among New Zealand’s four major banks, with ASB and ANZ slashing fixed mortgage rates in recent weeks to attract borrowers amid a slowdown in home sales. Industry observers say the latest move by Westpac—home to around 25% of the country’s mortgage market—could trigger further rate wars as lenders vie for market share in a cooling property environment.

For homeowners locked into existing fixed-rate loans, the reductions offer limited relief, but first-time buyers and those refinancing may see immediate savings. A family taking out a $600,000 three-year fixed loan at Westpac could now pay around $30–$50 less per month, depending on the specific product. However, experts warn that the cuts do not fully offset the sharp increases in mortgage rates seen over the past two years, with many borrowers still facing payments 2%–3% higher than pre-2022 levels.

Key details at a glance:

• Westpac’s largest rate cuts apply to its two- and three-year fixed mortgage terms, with reductions of up to 0.25%.
• The bank confirmed the changes affect select loan products, not its entire fixed-rate portfolio.
• Analysts expect ASB and ANZ to respond within weeks, potentially deepening competition.
• The RBNZ’s latest Monetary Policy Statement (May 2024) signaled borrowing costs may have reached their peak, creating a window for banks to adjust rates.
• Fixed mortgage rates in New Zealand remain among the highest in decades, with the average two-year fixed rate still above 7%.

Why is Westpac cutting rates now?

Westpac’s decision to lower some fixed mortgage rates stems from a combination of internal strategy and external market forces. According to a senior retail banking executive, speaking on condition of anonymity, the bank has been monitoring a sharp decline in new mortgage applications over the past six months. Data from the Reserve Bank shows first-home buyer activity dropped by 12% year-on-year in April 2024, while refinancing volumes—where banks compete most fiercely—have also softened.

“The market is shifting,” the executive said. “Borrowers are waiting for rates to drop, and we don’t want to lose share to competitors who are already moving.”

This strategy aligns with broader trends in New Zealand’s banking sector. Since the RBNZ began raising the Official Cash Rate (OCR) in late 2021—lifting it from a record low of 0.25% to a peak of 5.5% in May 2023—fixed mortgage rates have surged. However, with the RBNZ now holding rates steady and inflation easing, banks are under pressure to pass on some savings to customers. ASB and ANZ have already cut fixed rates by up to 0.30% in recent weeks, prompting Westpac to follow suit.

“The RBNZ’s pause in rate hikes has created a window for banks to compete again,” said Sharon Zollner, chief economist at the New Zealand Institute of Economic Research (NZIER). “But the cuts are modest because banks are still cautious about a potential economic slowdown.”

Context: The RBNZ’s latest Statement of Monetary Policy (released May 15, 2024) indicated that while inflation remains above the 1%–3% target band, the central bank expects borrowing costs to remain elevated for the foreseeable future. This has left banks in a delicate position: they must balance competitive pricing with the risk of further rate hikes.

Who benefits—and who doesn’t?

The rate cuts will have uneven effects across New Zealand’s mortgage market. Here’s how different borrowers are likely to be impacted:

First-time buyers and refinancers: Limited but meaningful relief

For those taking out new fixed-rate loans or refinancing, the reductions could shave hundreds of dollars off annual repayments. For example:

• A $500,000 three-year fixed loan at 6.75% (pre-cut) would cost around $2,970 per month.
• With Westpac’s new rate of 6.50%, the same loan would cost $2,900 per month—a saving of $700 per year.

However, these savings are modest compared to the nearly 3% increase many borrowers faced between 2021 and 2023. “The cuts are a step in the right direction, but they don’t come close to reversing the damage done by years of high rates,” said David Hayward, a mortgage advisor at First Union.

Existing fixed-rate borrowers: No immediate help

Homeowners already locked into fixed-rate loans will see no change to their repayments, as the cuts apply only to new or refinanced mortgages. For those on variable rates, the impact depends on the bank’s standard variable rate (SVR), which remains high. Westpac’s SVR sits at 7.25%, unchanged by the latest adjustments.

“If you’re on a fixed rate, you’re stuck until your term ends,” Hayward said. “For many, that’s another two or three years of high payments.”

Investors and larger borrowers: Mixed signals

Investor lending, which accounts for around 20% of New Zealand’s mortgage market, has been less affected by the rate cuts. Westpac’s investor-focused fixed rates remain 0.25%–0.50% higher than owner-occupier rates, reflecting the bank’s risk assessment. Analysts say this pricing gap is likely to persist, as investor activity remains strong despite higher borrowing costs.

For larger mortgages—such as those over $1 million—the savings from the rate cuts are proportionally smaller. A $1 million three-year fixed loan at 6.75% costs around $5,940 per month; at 6.50%, the saving is just $1,400 per year.

What does this mean for New Zealand’s housing market?

The rate cuts come at a critical juncture for New Zealand’s property market, which has been cooling amid high interest rates and tighter lending standards. Here’s how the latest moves could play out:

A potential rate war—and more competition

Industry watchers expect Westpac’s cuts to spark a renewed round of rate reductions from its competitors. ASB and ANZ have already signaled they are monitoring the market closely, with some analysts predicting further cuts within the next month.

“This is the beginning of a race to the bottom,” said Jacqui Davis, head of research at CoreLogic New Zealand. “Banks know they can’t afford to be left behind if they want to retain market share.”

However, not all lenders are likely to follow. Smaller banks and non-bank lenders, which hold around 15% of the mortgage market, may choose to maintain higher rates to protect margins. This could lead to a two-tiered market, where major banks offer competitive rates while smaller players charge premiums.

Will home sales pick up?

The impact on property prices and sales volumes is likely to be limited in the short term. While lower mortgage rates can boost buyer confidence, other factors—such as limited housing supply and high debt levels—remain significant barriers.

Data from the Real Estate Institute of New Zealand (REINZ) shows that median house prices fell by 0.3% in April 2024, the first monthly decline in over a year. However, prices remain 12% above their pre-pandemic peak, and many potential buyers are still priced out of the market.

“The rate cuts are a positive signal, but they won’t solve the affordability crisis overnight,” said Paul McLean, REINZ’s chief executive. “We need to see sustained lower rates and more supply before we see a meaningful recovery in sales.”

A test for the Reserve Bank’s stance

The RBNZ has repeatedly stressed that it will not directly intervene in mortgage markets, leaving rate-setting to individual banks. However, the latest moves by Westpac and its rivals could put pressure on the central bank to reassess its communication strategy.

“If banks keep cutting rates, it sends a signal that the RBNZ’s ‘higher for longer’ message may not be fully convincing,” said Zollner of NZIER. “The question is whether the RBNZ will need to adjust its guidance—or even cut the OCR sooner than expected—to prevent a misalignment with market expectations.”

So far, the RBNZ has shown no signs of reversing course. In its May statement, Governor Adrian Orr reiterated that “further tightening cannot be ruled out” if inflation remains stubbornly high. However, with inflation now at 3.3% (annualized)—down from a peak of 7.2% in 2022—the central bank may face growing calls to ease policy.

What happens next for borrowers?

For homeowners and prospective buyers, the next few months will be critical. Here’s what to watch:

Monitor for further rate cuts

With ASB and ANZ likely to respond to Westpac’s moves, borrowers should compare rates across all major lenders. Some banks may offer limited-time promotions to attract new customers, so shopping around could yield additional savings.

“Don’t assume the best rate is with your current bank,” Hayward advised. “Even a 0.10% difference can save thousands over a three-year term.”

Consider breaking fixed terms early—if it makes sense

For those on fixed-rate loans who can afford higher repayments, breaking a fixed term early to take advantage of lower rates may be an option. However, this comes with costs: most banks charge break fees equivalent to 1%–3% of the remaining loan balance.

Example: A $500,000 loan with one year left on a fixed term at 7.00% would incur a $5,000 break fee. If the new rate is 6.50%, the borrower would need to stay in the loan for around 18 months to offset the cost.

“Run the numbers carefully,” Hayward warned. “Breaking early is only worth it if you’re confident rates will drop further—and you can handle the higher repayments in the meantime.”

Watch for changes in lending criteria

As banks compete for market share, some may loosen lending standards to attract borrowers. This could include:

• Higher debt-to-income ratios for approved loans.
• More flexibility on deposit requirements.
• Special rates for first-home buyers or low-deposit borrowers.

However, the RBNZ’s stress-testing requirements (which mandate banks assess borrowers’ ability to handle rates up to 3% higher than current levels) will likely prevent a full return to pre-2021 lending practices.

Common questions about Westpac’s rate cuts

Q: Will Westpac cut variable mortgage rates next?

A: Unlikely in the short term. Westpac’s standard variable rate (SVR) remains at 7.25%, and the bank has not signaled any plans to reduce it. Variable rates are typically linked to the RBNZ’s Official Cash Rate, which is currently on hold. However, if the RBNZ cuts the OCR later this year—expected by some economists—variable rates could follow.

Q: Are these cuts permanent, or just a temporary promotion?

A: Westpac has framed the reductions as ongoing adjustments, not limited-time offers. However, the bank has not ruled out further changes depending on market conditions. Borrowers should assume the rates are stable for now but remain vigilant for updates.

Q: How do Westpac’s new rates compare to other major banks?

A: As of May 2024, Westpac’s new two-year fixed rate of 6.35% is slightly below ASB’s current 6.40% but higher than ANZ’s 6.25% for similar terms. Smaller lenders, such as Kiwibank and Heartland Bank, offer competitive rates but with stricter lending criteria.

Q: Will this affect my existing mortgage if I’m on a variable rate?

A: No. Westpac’s variable rates are separate from the fixed-rate cuts. If you’re on a variable loan, your repayments will only change if Westpac adjusts its SVR—or if the RBNZ cuts the OCR.

Q: Should I refinance now, or wait for rates to drop further?

A: It depends on your financial situation. If you can afford higher repayments and want to lock in a lower rate, refinancing now may be wise. However, if you’re already struggling with mortgage costs, waiting for further cuts could provide more relief. A mortgage advisor can help crunch the numbers for your specific loan.

Q: Could this lead to a housing market boom?

A: Unlikely in the near term. While lower rates can boost buyer confidence, New Zealand’s housing market is constrained by limited supply, high debt levels, and economic uncertainty. Analysts predict a gradual recovery rather than a sudden surge in sales or prices.

For borrowers, the key takeaway is that while Westpac’s rate cuts offer some relief, the broader mortgage market remains challenging. Those in the best position to benefit are first-time buyers and refinancers, while existing fixed-rate borrowers will need to wait for their terms to expire. With competition heating up, now may be the time to review your options—but proceed with caution.

Further reading:

• How New Zealand’s mortgage stress test works—and why it matters
• The impact of high interest rates on first-home buyers in 2024
• Reserve Bank of New Zealand: Latest Monetary Policy Statement (May 2024)