Bill English

Wellington, Jan 30 NZPA - The pressure is on banks to lower fees for customers wanting to break from fixed-term mortgages as home loan interest rates head south.

But bank chiefs are resisting pressure to be lenient with customers stranded on high interest rates, following yesterday's slashing of the Official Cash Rate (OCR) by the Reserve Bank.

The OCR was reduced from 5 per cent to 3.5 per cent and rapid falls in floating interest rates and new fixed rates have meant many were left locked into higher payments.

Finance Minister Bill English said yesterday he expected banks would be pressed to reduce the penalties for breaking mortgage agreements to get cheaper interest.

State-owned Kiwibank could expect a discussion with him as shareholding minister on the subject, he said.

The bank, which led the way announcing mortgage rate decreases yesterday, had some of the highest break fees of any bank, according to The Dominion Post.

Both Kiwibank and Westpac would charge more than $21,000 for a customer to break a $200,000 five-year fixed rate loan taken out in 2007 for 25 years.

ASB and National would charge $11,000 and BNZ just $8000.

Labour leader Phil Goff yesterday called on the banks to waive break penalties -- not universally, but for borrowers in genuine hardship where perhaps one partner is made redundant.

Kiwibank spokesman Bruce Thompson said the bank would be happy to brief Mr English on its methodology for mortgage break rates but did not intend to lower them because they reflected the cost to the bank.

"These are not estimated costs or costs which the bank is looking at making additional income...These are actual costs that the bank incurs."

Mr Thompson said that while Kiwibank's break rates were based on wholesale rates and were therefore higher than retail rates, its interest rate was lower than other banks.

Westpac spokesman Craig Dowling said his bank's high mortgage break rates reflected the high costs facing the bank when a client broke a mortgage.

Reserve Bank Governor Alan Bollard said yesterday it was a matter of private contract between banks and their customers.

"When people go to banks for mortgages they sign up to a set of conditions, and normally when they sign up there, there will be some clause which mentions breaking a contract and the implications for that."

Dr Bollard yesterday said expected banks to pass on the lower wholesale rates to their customers.

That was reinforced by Mr English. He said the Government had provided guarantees to the banks and the Reserve Bank was providing funding facilities to them.

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