Mortgage wars: Banks shift battle focus

Banks are now competing strongly with cashback offers

Mortgage wars: Banks shift battle focus

Banks now have a new battleground in cashbacks as volatile interest rates add pressure on home loan borrowers, brokers said.

Read more: Banks offer incentives as market cools

Interest rates have increased quickly over the past year as central banks around the world tried to rein in inflation. From a COVID low of 0.25%, OCR has lifted to 2.5%, taking home loan rates from around 2% to more than 5% in some cases.

Borrowers were offered some reprieve when three banks slashed their two-year special rates following a drop in the cost of wholesale funding, but interest rate competition appeared muted, Stuff reported.

TSB has ended its 4.85% special rate and replaced it with a one-year offer of 4.99% for the next three weeks – a rate spokesperson Joe Bishop said was below those offered by the big four banks, which advertised special rates were between 5.25% and 5.35% for one year.

“If our customers are looking for a different home loan term, our new ‘rate beat’ offer will ensure they get a lower rate than any of ANZ’s, ASB’s, BNZ’s, or Westpac’s current nationally advertised fixed home loan rates,” Bishop told Stuff. “We know a lot of Kiwis right now are doing it tough in an environment of rising prices and interest rates, so we want to make it easy for our customers to lock in a competitive home loan rate and have some certainty for the next year.”

Reserve Bank data showed banks are competing for a smaller mortgage market, with $6.8 billion in new lending in May this year compared with $8.9 billion last May. Real Estate Institute data, meanwhile, found 38.1% fewer sales in June than in the same month the prior year.

Glen McLeod, from Edge Mortgages, said banks were competing most strongly with cashback offers. Kiwibank and BNZ are both offering 1% cashbacks for new home loans, with BNZ to a maximum of $20,000.

McLeod said Edge Mortgages was less keen to cut rates to attract customers. 

Read next: Mortgage cashbacks return as housing market eases

“No-one really seems to be pushing the boat out at the moment with rates being so volatile – they are worried that if they cut rates and things change, they will have to put them back up again,” he told Stuff. “Lending is tight and servicing rates are higher and therefore it is a challenging time to be able to get an approval at the moment. With house prices coming back, it is opening up some room for first-home buyers to be able to purchase. They will need to have everything in order and their bank statements and their spending to be able to gain approval.”

Loan Market’s Bruce Patten agreed that cashback was the focus of competition.

“It seems they are all chasing the business; however, with the illness around, they are struggling a little bit with the number of people away, so it is an interesting time,” Patten told Stuff.

McLeod said his own business had “never been this quiet,” adding that people seemed to want to switch off after a tough couple of years.

Economists had predicted that the central bank might not need to lift the OCR to the full 4% it had forecast to curb inflation; but inflation hitting 7.3% last week made some reassess that forecast.

McLeod said he still expected to see a traditional spring campaign of interest rate specials, saying “banks can’t continue with what they are doing forever,” Stuff reported.