Your guide to 2018's mortgage wars

Wednesday, 14 November 2018

It's a busy time of year in the property market, so banks want to be in the spotlight.

Mortgage wars are in full effect as banks compete for your home loan business.

First ANZ advertised 3.95 per cent for a year, which ASB and Westpac have since matched.

Then BNZ hit back with 3.99 per cent for two years.

If you're a borrower with a good amount of equity, you're in prime position.

* ANZ offers 'special' mortgage rate as Auckland housing market loses sparkle

* Bank mortgage 'specials' not so special**

How good are the rates?

They are low, but not ridiculously so compared to what else has been on offer in recent times.

Until the end of August, Kiwibank was advertising 3.99 per cent for one year. HSBC still has 3.85 per cent for premier borrowers with more than 20 per cent equity.

Even without advertised mainstream rates, borrowers have been able to negotiate deals below 4 per cent in recent months.

Commentator Shamubeel Eaqub said advertised rates had little bearing on what people really paid.

'Once you talk to a mortgage broker or the bank you get a different rate anyway.'

The rates are specials, so they don't apply to buyers with equity of less than 20 per cent.

But they act as a starting point for borrowers' conversations – and keep the pressure on the market. Once one bank moves, the others follow.

Why now?

There are several reasons why the banks have chosen this month as the time to launch into fierce competition.

The first is funding costs, or how much it costs them to borrow the money the lend.

Infometrics economist Gareth Kiernan said these had dropped in recent months and that helped push down fixed rates.

The second is the time of year. Spring and early summer are traditionally when the highest number of houses sell, so banks want to make sure they are top-of-mind for borrowers contemplating a new loan.

'Spring tends to be a busy time for property purchases, which makes it a busy time for lenders, and they compete to get the business,' said banking expert Claire Matthews, from Massey University.

Turnover has been slow in recent times, so banks have to worker harder for borrowers and buyers who are there, rather than relying on a busy market to push people through the doors.

Banks have also been more careful about lending in recent years and Eaqub said that could have led some to realise they had been hanging back too much.

'The housing market has been relatively subdued so they probably have a bit of surplus funding that they can lend out, and so are dropping their rates to try and attract a bit attention from potential borrowers,' Kiernan said.

Loan Market broker Bruce Patten said it should not be expected to last long. 'They've made a call that they need to get market share up leading up to Christmas.'

Should you take the offers?

The deals being offered are significantly lower than floating rates, which hover about 5.8 per cent.

The fixes are short, which means that you don't have to sacrifice much flexibility in return for the special.

The chance of rates soaring while you're on the fixed term is small. The official cash rate is not expected to move until the year after next, at the earliest. While international funding costs are increasing, which affects longer-term New Zealand home loan rates, that is likely to be a slow increase rather than a rapid jump.

Kiernan said there was little risk from a borrower's perspective in locking in a one-year rate.

Patten also expected rates to stay low for a while yet.

'The one-year rates are particularly attractive and unless you need to lock in your costs of payments for a couple of years we still see it as a good bet. If you need security, the two and three-year rates will provide that to you, though.'

But he said it was not worth breaking an existing rate to get on to one of the specials.

'The costs of breaking a loan normally works out to be similar to the saving you will make… basically the cost to get out is the difference between what the bank paid for its money at the time you fixed and the cost for them to buy that same amount now. '