Lending deals heat up

Mortgage interest rate competition between banks is heating up, particularly for new lending deals.

Better discounts have been given to home owners since the end of last year, says Jeremy Andrews, Key Mortgages director and mortgage adviser.

“The ASB most noticeably has been a lot more competitive. This year all the banks have definitely been willing to negotiate and offer more discounts,” he says.

Some banks are offering larger discounts on the shorter terms, and others such as ANZ seem to be knocking more points off the longer term rates.

“There are big differences between what the banks’ advertised rates are and what can be negotiated.”

In part, this comes down to the sharp fall in the wholesale rates at the end of last year.

A simple calculation Andrews says is comparing the two year wholesale rate at October last year to now. It has dropped from 5.79% to 4.74%. “That’s more than 100 basis points since early October – a big difference in the space of less than four months.”

Wholesale rates are one of the big drivers of bank mortgage rates but Andrews points out they are only a part of how the banks borrow money.

He keeps an eye on them every day and says it’s a good indicator of where banks’ lending appetites are at. “It has taken more than three months to see some consistent discounts coming through for mortgage borrowers.”

Banks’ carded rates, advertised specials and what mortgage advisers can negotiate now come into the mix – three different figures.

“We have a good idea of what clients should be able to expect and negotiate. For example, I had one bank today offering 7.09% for a year and saying it was the best it could do. I pushed back and said ‘no way’, I am getting better offers from other banks. The offer was then escalated.”

He says sometimes it is a lot of extra work negotiating, but “we know well what banks should be doing”.

Andrews says ASB and ANZ are attractive for first home buyers with smaller loans, while Kiwibank is desirable in the $500,000 to $1 million lending space.

The magic number for a good deal is 20% equity in any property. “More than that is nice, but banks don’t really negotiate much harder if a home owner has more than 20%, which is the magic number,” Andrews says.

Short terms favoured

Meanwhile RBNZ November data shows only 10% of new loans for first time borrowers were taken out for longer than two years.

All up 72% of new loans were fixed for up to two years – a split of 34% for one year and 38% for one to two years. Just 18% were loans on floating rates.

Banks’ interest rate cuts at the end of last year were mainly for longer terms loans but as yet there are no figures on how many borrowers were tempted by those.

The RBNZ is not keen on banks cutting mortgage interest rates as it battles to take inflation back into the 1-3% band. 

In in a stern note at the November OCR review when it kept the rate at 5.5%, it pushed back against a growing market perception that cuts could come before long.

In fact, it says if further inflationary pressure is seen the OCR will have to increase again.

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