ASB has cut its two year special to 2.99%. The new rate is effective from this morning, and marks a 6 basis point reduction on the old price.
Craig Sims, ASB executive general manager of retail banking, said the low rate would help borrowers navigate through the new global financial crisis.
“This has been a difficult time for a lot of our customers. While we have put in place a number of support options, including mortgage repayment deferrals and interest-only payments, we’re continually evolving what we are doing to help Kiwis get through the impact of Covid-19. Offering this two-year special rate is part of that."
ASB has also slashed its 18 months special home loan rate by 50bps to 3.25%.
ASB chief economist Nick Tuffley said the new rate was a direct result of the Reserve Bank's actions to push rates down post-Covid-19.
"These are clearly bearing fruit by enabling mortgage rates to fall to even lower levels,” Tuffley said.
“Lower interest rates like ASB’s two-year special rate will put cash into the pockets of the mortgage belt, helping to stimulate and restart the economy. Lower borrowing rates will also help to further alleviate any financial worries that borrowers may have,” Tuffley added.
Meanwhile, state-backed Kiwibank has cut its one year special to 2.99%, a drop of 10 basis points from its previous 3.09% offer. The new rate comes into effect on Monday May 11.
Kiwibank general manager of product Nicole Pervan said the bank wanted to provide "value" to customers.
“Customers with a fixed interest rate expiring within the next month are likely to roll onto a new interest rate 1% lower than their current rate," Pervan added.
“On an average sized loan this will reduce repayments from $50 to $70 which will go a long way at this time. Customers have the flexibly to pay off their loan faster or keep that money in their back pocket for a rainy day.”
The cuts come after wholesale interest rates began to price in further Official Cash Rate cuts by the end of the year. Markets give an 80% chance the OCR will fall to 0%.
The sub 3% rates aren't the first in the New Zealand market.
China Construction Bank launched a 2.80% 1 year mortgage, the cheapest in the market, earlier this week, and Heartland Bank offers a 2.89% one year rate, still the second cheapest. KiwiSaver provider Simplicity also has a 2.95% mortgage for members.
Yet ASB and Kiwibank's moves are likely to trigger a sub-3% price war, with other big four banks and challengers under pressure to match them.
NZFSG's Bruce Patten described the cuts as "great news for borrowers".
He said borrowers were better off sticking to a one year mortgage, given the RBNZ's commitment to keeping rates on hold for a year.
"At the moment there is no reason for anyone to consider anything other than a 1 year rate, given the reserve bank has guaranteed the OCR to stay at current levels for at least 12 months," Patten added.
The Reserve Bank is set to outline its position on the OCR next week, with analysts divided on the prospect of 0% and sub-zero rates.