Borrowers benefit from mortgage rate battle

A volley of interest rate cuts in recent days is a skirmish among lending institutions rather than the opening salvo of a mortgage rate war, commentators say.

Kiwibank yesterday dropped its fixed mortgage rates to 7.95 per cent for two years and 7.75 per cent for three years, undercutting earlier drops by the ASB and the Bank of New Zealand.

TSB yesterday dropped its two-year rate to 7.95 per cent. Westpac dropped its two-year rate to 8 per cent, and the three-year rate to 7.95 per cent, says website interest.co.nz. With a small share of the home loan market, understood to be around 2 per cent, Kiwibank's move seemed to be a bid to snap up some of the $40 billion worth of business offered by borrowers who took advantage of low fixed term offers during the last interest rate war two years ago, whose loans are about to expire.

Some of the rates now offered by banks were "very sharp" and left little margin for them to cover costs, said David Tripe, director of the Centre for Banking Studies at Massey University.

"Everybody is gearing up to chase after some of that market for themselves ... what they are really looking to do is snare the customer and hope they can make some money out of the customer in other ways.

"This could be likened to doing the haka before the match starts, but at current interest rate levels there is not a lot of scope for people to go down further unless they are really desperate for market share and are willing to make some losses in the process."

David Chaston, publisher of interest.co.nz, likened the latest rate cuts to border raids to try to kidnap other banks' customers.

He, too, downplayed the possibility of large-scale cuts.

"I think there's going to be an aggressive Lebanese skirmish, meaning it's going to be short and very sharp and well documented, but I don't think it's going to be very long."

A month ago most banks had raised their rates, and those which had started reversing the trend could be seen as opportunistic, he said.

"It was a little bit of a surprise to see ASB fall away and fire a shot like they did last Friday and it was really interesting to see that everyone was taken off guard and ASB had a free ride through the weekend in terms of publicity over the thing.

"It wasn't until Tuesday that the rest of them started to respond; BNZ did at the end of Monday, but normally they respond instantly ... but I don't think it's going to be very long-lived, so the opportunity may only be there for consumers for a week or two."

Blair Vernon, general manager personal financial services for the BNZ, said there was never a beginning or end to competition among institutions to offer the best home loan rate.

"It's fundamentally competitive week in, week out."