Mortgage wars: Big bank cuts interest rates for low-deposit home-loan borrowers

A big bank is to offer home-loan borrowers with a small deposit the same special interest rates that those with a deposit over 20 per cent can get - a move that will help first-home buyers.

Typically banks charge a higher interest rate for those with equity of less than 20 per cent, which means low-deposit borrowers miss out on the special rates which can typically be about 50 basis points lower.

But ASB has said it will make its special rates available to all borrowers from July 16 - although those with equity of less than 20 per cent may still have to pay a low-equity margin.

Craig Sims, executive general manager of retail banking at ASB, said the change would save low-equity first-home buyers thousands of dollars each over the course of their home-loan repayments.

"This is going to help our first-home buyers in particular, as they often have lower equity, and so face higher rates. This will give them a leg up and hopefully help more New Zealanders into home ownership," he said.

ASB's rates are currently 2.69 per cent fixed for either one or two years or 2.65 per cent over 18 months.

Rival banks ANZ, BNZ and Westpac are all offering lower rates with 2.55 per cent fixed over one year - but these are only available to borrowers with more than 20 per cent deposit or equity.

For those with low equity, ANZ offers a standard rate of 3.15 per cent over one year or 3.25 per cent over either 18 months or two years fixed.

While BNZ's standard rates are 3.25 per cent over one year or 3.29 per cent over either 18 months or two years.

Westpac's standard rates are even higher at 4.15 per cent for one year or 4.09 per cent for two years fixed.

Sims said ASB was the first of the main banks to have a single-rate card offer.

But a low-equity margin will still apply for borrowers at ASB.

Those with low equity are charged a different level of margin depending on how much equity a borrower has.

For a borrower with a loan-to-value ratio of between 80.01 per cent and 85 per cent the margin is 0.3 per cent per annum, between 85.01 per cent to 90 per cent it is 0.75 per cent per annum and between 90.01 per cent 95 per cent it's 1.3 per cent. Anything over 95.01 per cent has a margin of 1.5 per cent.

The loan-to-value ratio is worked out by total borrowings divided by the value of the property.

Home loan rates dropped to all-time lows this year after the official cash rates was slashed to 0.25 per cent in May with the Reserve Bank signalling the rate will be keep at that for at least a year.

There are expectations that the official cash rate could also go into negative territory next year.