Founder says mortgages are more profitable for banks than they’ve ever been
Mortgage rates have been sitting at historic lows over the past several years, but some market players suggest that given the profit margins of the main banks, there is still room for further cuts.
Commenting on current rate levels, Simplicity co-founder Sam Stubbs said that mortgages are “more profitable than they’ve ever been,” and rates still have a lot of room to drop further - particularly floating rates, which banks have been notoriously reluctant to cut, despite fixed rates going steadily down.
“Mortgage rates are very expensive, even at the current level,” Stubbs said.
“They’re historically low, but if you look at the net interest margin that the banks are making, that’s almost at a historic high. So, the irony of this is that even though the ‘headline’ mortgage rates are lower than they’ve ever been, mortgages are also arguably more profitable than they have ever been.”
Read more: Simplicity expands floating mortgage rate - lowest in the market
“The latest six-month numbers all have net interest margins for the banks at around 2% - that’s extremely historically high, so make no mistake that the banks are milking it at the moment,” he explained.
“They obviously have created an illusion that rates are very low, but they should be even lower, and they would be if the banks weren’t so overwhelmingly focused on profit.”
Despite this, Stubbs said that the overall picture for the housing market is likely to improve as measures are taken to cool its growth.
He said that the current consenting figures are looking promising, and though “the jury is out” on how effective government and RBNZ measures will be in the long-term, we are unlikely to see the period of “irrational exuberance” in the housing market continue for much longer.
Read more: Mortgage wars: Heartland bank drops home loan rates
“There are a whole lot of things that are intended to cool down the housing market, but fundamentally, we still need more supply,” Stubbs said.
“Consents are up markedly in Auckland, and it now takes four and a half weeks to get a title issued, whereas previously that was six weeks. Will that be enough is the question, partly because we don’t know what will happen with immigration once the borders open.”
“The jury is still out on whether this will all be enough, but I think there’s no question that it’s going to be better than it was in terms of supply,” he concluded.
“I think the period of ‘irrational exuberance’ is almost over in the housing market, and that things will calm down from here.”
