KEY POINTS:
State-owned Kiwibank last night defended its move to offer cut-rate mortgages, despite its Government masters' wish to see the housing market cool.
Spokesman Bruce Thompson told the Herald that though the bank was a state-owned enterprise, it operated at "arm's length" from the Government.
The Government's policies and Kiwibank's commercial activities were separate, and there was no "conflict" between the two.
Mr Thompson's comments come after the bank - which holds about 2 per cent of the mortgage market - announced it was offering a three-year fixed rate of 8.6 per cent.
But one banking source suggested it was ironic the Government-owned bank was risking a mortgage war when the Labour-led Government had previously been vociferous about the need to slow the overheated housing market.
Mr Thompson said Kiwibank operated in "an extremely competitive market" and the best way to get ahead was to offer "attractive" rates.
"What we are saying is this is our rate. This is what we can do, beat us if you can."
The move marks the opening salvo in what homebuyers will hope is a bank-led mortgage war, but its opponents have yet to return fire.
BNZ was not planning any immediate response, spokeswoman Brenda Newth said. The bank was "comfortable" with its present rates, which she described as "competitive".
ANZ and Westpac were taking a wait-and-see approach last night.
The Kiwibank move has also met with a low-key response from industry pundits.
Property expert Ollie Newland told the Herald first-home buyers would benefit from the lower rate, as high rates had always been "the biggest hurdle" to buyers with small equity.
He did not expect the lower rate to last for long. "It will last a few months, then, like everything else, it will go back to the way it was before."
Interest.co.nz boss David Chaston believed the next two months would be crunch time for the New Zealand property market, and any mortgage battle might not have any great effect on it.
Mr Chaston said there was plenty of scope for a lowering of mortgage rates, as the wholesale interest rate had dropped, with no corresponding fall in the market rate.
There was scope for the five-year fixed-interest rate to drop to 8.55 per cent from its current 8.95 per cent, and the trading banks could go to 8.75 per cent on three-year fixed mortgages, he said.
A two-year fixed rate would not be likely to go below 8.8 per cent.
House sale volumes had fallen by about a third in July and August, and how those volumes held during September and October would determine future property prices, he said.
Massey University banking expert David Tripe said he was reluctant to ascribe "any great significance" to the lower rate. Even at 8.6 per cent, the rate was still a lot higher than the 7.9 per cent of a year ago or the 6.9 per cent of three years ago, he said.
"I am certainly not going to jump up and down saying, 'This is really exciting. We are having another mortgage war'."
