Co-operative Bank joins the small bank mortgage war pushing down home loan rates

Thursday, 28 January 2021

Homes used to cost a lot less, but in previous decades home loan interest rates were much higher. Home loans rates are however on the rise as the Reserve Bank Te Pūtea Matua has been raising the official cash rate to fight inflation.

The Co-operative Bank has joined a fellow challenger bank, Heartland, in hammering down its home loan rates to well below those of the four big banks.

Heartland had moved its owner-occupier rates for one-year fixed home loans for borrowers with equity in their homes of at least 20 per cent down to 1.99 per cent, and its two-year fixed rate down to 2.35 per cent.

Both of these were lower than any of the big four banks.

The Co-operative Bank is offering a 2.09 per cent one-year fixed rate to first home buyers. It has also cut its six-month fixed rate for first home buyers to 2.29 per cent.

**READ MORE:

Mortgage lending is booming as house prices continue to rise. Heartland and The Co-operative Bank are undercutting the lending rates of the big banks in a bid to win market share.

* Mortgage rates heading lower, further stoking hot housing market

* Home loan rates slip below 2 per cent – for some borrowers

* The family with the lowest mortgage rate in New Zealand

None of the big four Australian-owned banks is offering a six-month fixed rate below 3 per cent, though HSBC and TSB are.

The Co-operative Bank’s chief executive, David Cunningham, told Interest.co.nz that the bank had drawn down on the Reserve Bank’s Funding for Lending programme.

The programme provided cheap funding for banks and was designed to support lending in a bid to help the economy weather the economic storm caused by the Covid-19 pandemic..

Home loan adviser Karen Tatterson says Aucklanders are still able to save deposits for first homes, but it takes a lot of commitment.

In October, Heartland Bank took home loan rates down below 2 per cent, a record low.

Heartland Group chief executive Jeff Greenslade said the rates highlighted the benefit of the company's digitalisation strategy and the funding flexibility its group structure provided.

The bank had invested heavily in moving its lending services online, which had also sped up the approval process and cut costs significantly, he said.

The cutting of Heartland’s home loan rates came as disgruntled staff at the bank went on strike to demand pay rises.

Mortgage adviser Karen Tatterson said the challenger banks, including SBS and TSB, were options that borrowers keen on dealing with New Zealand-owned banks could use.

TSB had a price-match offer in which it would at least match the best offer of any Australian-owned bank, she said.

“The smaller banks are a really good option in some cases,” Tatterson said.

But the big Australian-owned banks still dominate the lending market, she said.

“The volumes [of the challenger banks] are small compared to the big banks,” she said.

The big banks also have a KiwiSaver challenger, with Simplicity offering floating rate home loans at 2.5 per cent to its first home buyer members.

Only Heartland among the banks has a floating-rate home loan of 2.25 per cent to match the Simplicity offer.

The Co-operative Bank’s floating rate is 4.4 per cent.