Good news for borrowers! Banks keep cutting selected mortgage rates. Who stands to benefit as banks compete?

Recently, several major New Zealand banks have successively cut longer-term fixed mortgage rates, including two-year rates (click to read). Some smaller banks have begun following suit, even cutting their rates well below those offered by the major banks.

SBS Bank recently announced a cut in its one-year rate to 6.14% for first-home buyers. This has made quite an impact on the mortgage market. With expectations of falling mortgage rates growing, many people are already looking forward to substantial cuts from the banks.

The property market is waiting for interest rates to fall

However, questions soon arise: why has SBS cut its one-year rate when other banks have not? And why did it choose to do so a week before the official monetary policy statement?

In response, an SBS Bank spokesperson said the market-leading 6.14% rate offered through its award-winning First Home Combo package reflected the bank’s commitment to its purpose of “helping Kiwis find a place to call home”. Although its one-year fixed rate of 6.14% was currently the lowest on the market, the bank would continue reviewing it regularly to offer customers the best possible rates.

Easy Street Mortgages financial adviser Gareth Veale believes that although SBS Bank’s special rate for first-home buyers “looks attractive”, it will not necessarily suit every borrower.

The special rate is available only to first-home buyers with a deposit of 20% or more, or those buying through Kāinga Ora’s First Home Loan scheme, which guarantees loans and therefore requires a deposit of only 5%. The maximum cashback offered is NZ$4000, and borrowers can also use their KiwiSaver balance. Veale said it could be a good option for first-home buyers with a deposit below 20% who qualified for the Kāinga Ora scheme, but it was not available to anyone outside these two groups.

Veale has always maintained that interest rates are not always the biggest factor in a borrower’s decision about which lender to choose. A one-year rate of 6.14% sounds attractive, but does that mean you will also get more competitive rates in the second, third and fourth years? Over the longer term, the potential interest rate advantage may not be as good as it seems. Depending on the particular deal, differences in cashback could also make another bank a better choice for the borrower.

Total Mortgage adviser Jordan Cameron agreed, saying some first-home buyers ultimately found that although one bank’s rates might be slightly higher than another’s, this could be offset by other factors, such as an easier application process, substantially higher cashback and better customer service.

He noted that most borrowers currently chose to fix their mortgage for six months to a year. In the worst case, if rates did not fall over the coming months, they could fix for another six months.