BNZ returns fire in lending war

Bank drops two-year fixed interest rate to ‘historic’ 3.99% as mortgage battle grows

The Bank of NZ has dropped its two-year fixed interest lending rate to a “historic” 3.99 per cent 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 II with a fixed one-year term of 3.95 per cent.

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

Westpac also says it will match ANZ’s offer of a one-year fixed rate at 3.95 per cent, beginning tomorrow.

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

The highest rate on record was 19.72 per cent in 1988.

Loan Market mortgage adviser Bruce Patten says spring is traditionally when banks release interest-rate specials, but the latest 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 new low rates come after a near decade-long boom of soaring Auckland house prices drove values to unaffordable levels that locked many people out of home ownership.

The resulting fall in demand and new Government rules targeting investors led prices and sales volumes to plateau and they’ve largely remained flat throughout this year.

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

But CoreLogic senior analyst Nick Goodall didn’t believe the new low rates would bring significantly more buyers into the market.

This was because responsible lending laws require banks to still test the finances of potential buyers to ensure they can afford to pay mortgages at rates higher than 7 per cent.

“So even though you can secure these loans under 4 per cent, they are making sure that if there was a 7 per cent 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”.

So the low rates were as much aimed at stealing other banks’ customers as they were at attracting those taking out new home loans.

“So if someone comes to the end of a fixed-term rate . . . they might sit there and go, ‘Oh, maybe we should go across to ANZ or BNZ or whatever it is’, whereas otherwise they might just stick with their current bank.”

The rate specials offered by ANZ, BNZ and Westpac are available only to homeowners with a deposit or 20 per cent equity stake in their homes.

But ANZ’s $3000 cash-back offer is available to customers with less than 20 per cent equity, according to Loan Market’s Patten.

BNZ chief economist Tony Alexander said “sustained low inflation, the effectiveness of the Reserve Bank’s LVR rules and the recent cooling in the New Zealand housing market in spite of still strong economic growth” had given the bank the confidence to offer the rates.