Kiwibank has upped the ante in the home loan market dropping its two-year rate in anticipation that another official cash rate cut is coming.
Its new rate is 7.99%, for deals with at leas 20% equity in them. Its standard rate is 8.19%, compared to rates of between 8.70% and 8.90% for other trading banks. (Check and compare home loan rates at http://www.landlords.co.nz/mortgage-rates.php)
Kiwibank chief executive Sam Knowles said the bank was “jumping the gun” on an expected cut in the official cash rate late next month.
He said Kiwibank was in a good position to take this position as it was funded from local deposits, while other banks rely on offshore funding which is becoming more expensive.
“We are able to utilise the very high level of deposits we are receiving to fund our home loan lending. Alternative sources of funding from the international wholesale markets are much more expensive,” Knowles said.
This week Kiwibank raised another $60 million through a tier two bond offer at 8.75%, which is being used for mortgage lending. Also it is seeing strong flows of deposit funds through its term investments and PIE funds.
Knowles says Kiwibank is seeking new business while other banks are focussed on retaining exisitng customers.
He says Kiwibank has $500 million to lend out.
Knowles says Kiwibank isn't in a war: "It takes more than one to start a war." "I don't think any (other bank) will come out like us and strongly cut rates."
While Kiwibank is offering a two-year rate at levels similar to where this term was a couple of years ago most commentators have been recommending borrowers take terms of six months or a year or even go to a floating rate, in the expectation that cheaper funds would be available within a year.
Added to this rates on terms of two years or more have held little attraction for borrowers because they have been at historically high levels.
As reported yesterday many non-bank lenders have axed fixes beyond a year, thus restricting choice.
Advisers and commentators have been steering borrowers away from this traditional choice but the picture could change again over the next few days.
Borrowers who are seeking the lowest price and also want certainty over what they will be paying for two years may find it hard to resist a two-year fix.
Broker Darren Pratley, of Auckland Home Loans, says borrowers need to continually review their positions.
“You don’t want to have too much debt coming due at the same time.”
For Pratley it will come as no surprise if rates do not follow a straight path downwards.
“Everyone is telling us the trend is that rates will come back. My personal opinion is that we are going to see a gradual slide in rates. I don’t think it will be as dramatic as a lot people are picking.
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