Banks signal war as rates hit 70year low

WELLINGTON: The Bank of New Zealand has dropped its twoyear fixed interest rate to a ‘‘historic’’ 3.99% as it returns fire in a burgeoning mortgage war between the country’s lenders.

ANZ — the nation’s largest bank — last week offered the lowest rate by a major bank since just after World War 2 — a fixed oneyear term of 3.95%.

It then followed this up by offering a $3000 cashback incen tive for customers who took out a new home loan and committed to keeping their mortgage with ANZ for three years.

Westpac also announced it will match ANZ’s offer of a oneyear fixed rate at 3.95%, beginning today.

Smaller banks had earlier tempted customers with rates under 4% during the past month but major lenders have not dropped so low since the 1940s.

The highest rate on record was a staggering 19.72% in 1988.

Loan Market mortgage adviser Bruce Patten says spring is traditionally the time when banks released interestrate specials, but the current low rates showed they were in a fight for customers.

‘‘It means banks are trying to stimulate activity so they are giving up a bit of margin to get a crack at the small volume of lending around,’’ he said.

‘‘It is great for the consumer because we have some really low rates.’’

The banks’ new low rates come after a near decadelong boom of skyrocketing Auckland house prices drove values to unaffordable levels that locked many people out of home ownership.

The subsequent drop in demand and new Government restrictions targeting investors led prices and sales volumes to then plateau and largely remained flat throughout this year.

However, October had brought an increase in prices and the number of houses sold, Barfoot and Thompson managing director Peter Thompson said.

These signs of a spring bounce combined with the banks’ new low rates led some pundits to question whether there would now be a rush of new buyers entering the market, who would once again push prices up.

CoreLogic senior analyst Nick Goodall did not believe the new low rates would bring significantly more buyers into the market.

This was because responsible lending laws require banks to still run stress tests on the finances of potential buyers to ensure they can afford to pay mortgages at rates higher than 7%.

‘‘The banks’ focus is still on stringent income tests, making sure a [borrower’s] income is valid, and they can afford the mortgage and serviceability test,’’ he said.

‘‘So even though you can secure these loans under 4%, they are making sure that if there was a 7% interest rate tomorrow that people can pay on that as well.’’

This showed that while banks have an appetite for more customers, they were still picky about who they lent to, ‘‘which is why we are not seeing a massive increase in new borrowers or house sales’’.

The low rates were therefore as much aimed at stealing existing customers from other banks as they were at attracting those taking out new home loans.

The low rate specials offered by ANZ, BNZ and Westpac are only available to home owners with a deposit or 20% equity stake in their homes. — NZME