Simplicity declares war with 2.95% mortgage

Non-profit KiwiSaver provider Simplicity has declared war on the major banks by launching a 2.95% mortgage for first-home buyers.

The investment firm will offer the cut-price mortgage to first time buyers, lending to customers who have held a Simplicity KiwiSaver fund for more than a year.

Simplicity members can access the mortgage through a monthly ballot system. Once approved, recipients will have six months to buy their first home.

The loans are available to customers borrowing up to 80% LVR for their first property. Repayments cannot exceed 30% of after-tax income for borrowers.

The Simplicity mortgages will have no break-fees, no penalty fees, and members can repay loans in full at no extra cost. The firm will fund the loans through KiwiSaver and investment fund contributions.

Simplicity founder Sam Stubbs said his company was keen to challenge the established banks who were “driven to make profits” with “high margins 20% greater than Australian counterparts". Stubbs believes Simplicity will lend $50 million in the first six months.

Stubbs told TMM Online New Zealand banks operated with “excessive” profit margins, and failed to pass on enough of the recent Official Cash Rate cuts to customers.

“For a long period of time, New Zealanders have been paying too much for their mortgages. There are talkers and there are walkers. We decided to do something about it,” Stubbs added.

“This will show people just how low mortgages should be. Even at low rates, these mortgages will make our investing members a lot more money, too,” Stubbs added.

Simplicity will not pay advisers trail commission. Stubbs says advisers should consider the new product "which will free up money for clients, get them into their first home, and leave them with more money to invest".

According to TMM's rates table, the cheapest floating rate on offer in the market is Resimac's 4.5% loan. The cheapest fixed rate, ICBC's one-year, is at 3.18%.

Stubbs said Simplicity decided to go into the mortgage space as it had reached a “critical mass”, adding the firm would have a “high quality” first home mortgage book.

He expects mortgage lending to be a “permanent fixture” for Simplicity, and likened the new business model to a building society.

“Building societies have been doing this for centuries, but needed branches and staff. Now, we can do it online, and cut our mortgages to the lowest rate,” Stubbs said.

The first ballot for Simplicity members opens on November 1. The winners of the ballot will be chosen in early December.

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