Rates dropping while funding dries up

This has been particularly evident in the floating rate area where rates are down the full 100 points. It hasn't been quite so pronounced in the fixed rate market where cuts have been smaller.

This is all great news, especially to anyone refinancing an existing home loan at the moment. But there is a catch. That is, many of the lenders haven't got a lot of money to lend out at the moment due to the global financial crisis.

The crisis has pushed up the cost of money in the international markets where banks source some of their funding. The crisis has also made pricing volatile.

The upshot of this situation is that many of the non-bank lenders are no longer in the market. Of those that remain they aren't offering fixed rate loans in many of the common terms, such as two years. Meanwhile, banks have toughened their lending criteria, making it harder to get loans approved and there is talk in the market one major bank has "switched off the tap" and is no longer lending.

So while rates are getting down to numbers near their historical average, it's hard to actually get a loan.

The other development is that banks are breaking ranks and following different pricing strategies.

While we generally make comparisons among the big banks it is worth including two of the smaller banks at the moment; Kiwibank and TSB.

These two, which fund most of their loans from the domestic market, are leading competition in interest rates.

Kiwibank has set its floating rate at 8.70% which is significantly lower than the big banks which are all sitting at around the 9.45% mark and TSB is on 9.95%.

When it comes to the popular two-year term, Kiwibank and TSB are aggressively pricing their rates below the 8% barrier and as low as 7.78% when the borrower has a loan-to-value ratio of no more than 80%, while the big banks have two-year rates in the 8.20% to 8.30% band.

More rate cuts are predicted to come before Christmas so home loan rates should continue to fall.

To keep up with the changes and compare rates go to www.goodreturns.co.nz and click on Mortgages.