Banks willing to rate match, adviser says
Kiwibank is leading the charge on the popular short-term fixed mortgage rate market, offering borrowers a price point slightly below that of its Australian-owned competitors.
The Kiwi-owned bank has traditionally offered a cut-price variable floating rate, which on Wednesday was lower than the variable floating rates of ANZ, ASB, BNZ and Westpac.
For mortgage borrowers wanting certainty over their mortgage repayments, Kiwibank’s 1-year special rate of 5.55% is currently the cheapest in the market.
The rate, which is available to new and existing mortgage customers with a minimum of 20% deposit, is slightly below that of ANZ’s one-year special rate of 5.57%, and below ASB and BNZ 1-year rates and Westpac’s 1-year special rate, all at 5.59%.
According to the mortgages.co.nz & Tony Alexander Mortgage Advisers Survey for December 2024, borrowers “overwhelmingly favoured” fixing for shorter terms, 6 months being the most preferred term.
On Thursday, the five main banks, ANZ, ASB, BNZ, Kiwibank and Westpac, offered a 6-month fixed rate special or 6-month fixed standard rate of 5.99%. Across the traditionally popular 2-year mortgage rate market, Kiwibank’s 2-year special rate of 5.45% was higher than BNZ’s rate of 5.29%, Westpac’s special rate of 5.39% and ANZ’s special rate of 5.44%.
Banks willing to match competitor rates
Platinum Mortgages New Zealand director and financial adviser Angela Downie (pictured above), said that it wasn’t a surprise to see Kiwibank cut the price on its 1-year mortgage rate.
When asked to negotiate, most banks had been matching rates, including for borrowers refixing their mortgage, she said.
“Banks are now increasingly competitive in this space, and Kiwibank is keeping pace with others,” Downie said.
In a fluctuating mortgage rate market, Downie said that the bank was likely looking to attract customers wanting short-term certainty.
In response to why the bank had positioned its 1-year fixed rate slightly lower than that of the other four main banks, a Kiwibank spokesman said that the 1-year rate provided “good value” on a term that had historically been “one of the most popular” with its customers.
The option to fix for one year provided an option outside of the 6-month term, which the Kiwibank spokesman said many of its customers were “choosing now”.
Difference across 1-year fixed rates marginal, says adviser
Commenting on Kiwibank’s 1-year special mortgage rate of 5.55% versus 5.57% and 5.59% offered by ANZ, ASB, BNZ and Westpac, Downie confirmed that based on a $500,000 principal and interest mortgage taken over a 30-year term, the difference was marginal.
For a borrower paying an interest rate of 5.55%, the weekly repayment would be $658.77, at 5.57% it would be $660.22 and at 5.59%, the weekly repayment would be $661.67 – less than $3 per week difference.
“While this might add up over time, the impact on the monthly or yearly budget isn’t significant,” Downie said.
How important is the interest rate?
While the headline interest rate can be a transparent decision-making tool for mortgage borrowers, Downie said that their budget and long-term goals should be considered the priority.
Every borrower’s situation is unique, and therefore, each mortgage should be structured accordingly, she said. As a believer in spreading risk, Downie said that having flexibility in a mortgage can be key.
“Borrowers may opt to fix different portions of their mortgage, aligning different expiry dates with their future plans,” she said.
Is fixing for one year the right choice?
The first official cash rate announcement for 2025 is due on February 19 and ASB, Kiwibank and Infometrics economists are among those forecasting a 0.50% cut.
Infometrics chief forecaster Gareth Kiernan said earlier in January that a 0.50% cut in February could see mortgage rates for terms up to 2 years fall between 10 and 15 basis points.
Kiwibank chief economist Jarrod Kerr said in January that he didn’t expect mortgage rates to fall significantly through to May, noting that market expectations on future OCR movements were largely priced in. If the Reserve Bank were to cut the official cash rate to 3%, borrowers could expect a little more downward movement later this year.
For borrowers weighing up whether to fix their mortgage for one year, Downie provided the following pros and cons, noting that they do not take individual circumstances into account.
Pros (1-year fixed mortgage rate)
- Secure a lower rate now, before any changes to the official cash rate take effect.
- Receive rate certainty for the next year, providing time to assess how the market and official cash rate changes affect retail mortgage rates moving forward.
Cons (1-year fixed mortgage rate)
- Borrower misses out on further falls in short-term mortgage rates in February and May.
- May limit flexibility to take advantage of further market changes, or to make changes according to changing circumstances over that year.
Outside of the main banks, the lowest 1-year fixed rate available on Wednesday was 4.79%, offered by SBS Bank as a first home combo rate. Other lenders, including Unity Money, Heartland Bank and Co-operative Bank offered 1-year fixed rates ranging from 4.99% to 5.49%.
