Westpac’s three-year fixed mortgage rate of 4.99% is probably not sustainable, an economist says. 

The bank announced it would be offering the rate on Wednesday. 

It is the first major bank to offer a rate below 5% this cycle. 

Infometrics chief forecaster Gareth Kiernan said if the other banks matched the rate, it would take the margin between the three-year rate and three-year swap rates to the lowest since October 2023. 

“Although that isn’t a particularly long time, it’s probably more important to note that the margin across any swap-mortgage rate pairing has only been below the 1.6 percentage points implied by Westpac’s rate between August 2021 and October 2023, which was not a time when the market was operating normally due to other monetary policy measures that had been implemented by the Reserve Bank.” 

That was the period in which the large-scale asset purchase programme and funding for lending were functioning, pushing more money into the market. 

It was not a sustainable rate and seemed designed to get a bit of market share for a term that banks did not generally compete on much or had a lot of business in, Kiernan said. 

“Although there might be some cuts by the other banks to their three-year rates, I generally wouldn’t expect them to go as low as Westpac with their advertised or carded rate. However, if you were looking to fix or refix with them, they might offer the same rate of 4.99% if asked.” 

The other main banks are offering special rates of 5.59% over three years. 

Squirrel chief executive David Cunningham said the rate was likely to win Westpac a lot of business, so it would not be surprising if banks started matching it “below the line” at least to retain customers. 

“The margin compared to wholesale rates at which Westpac is pricing the 4.99% is more in line with long-run margin trends. Margins on home loans have been elevated for a couple of years, so this may be the start of what I’d call normalisation of margins. 

“An implication is that term-deposit rates will drop substantially. I think they’re headed below 4% in the next few months. Standing back, I think other banks will have been very surprised at Westpac’s move. 

“Squirrel has been predicting sub-5% two or three-years rates for a couple of months now, so it’s good to see it happen sooner rather than later.” 

It was very good news for borrowers, he said. 

“There’s a $4 billion-per-annum reduction in mortgage interest costs gradually emerging as the 80% of floating or fixed mortgages reprice this year. The average mortgage rate today is about 6.25% on the $370b of home loans, so 1.25% lower is a 20% reduction in the interest component of mortgage payments.” 

Jeremy Andrews, a mortgage adviser at Key Mortgages, said he had not yet been able to get other banks to match the rate. 

-Susan Edmunds, RNZ