KEY POINTS:
Competition is white-hot in the mortgage market, with banks offering loans to people they wouldn't have touched three years ago.
The influx of new lenders willing to offer loans to people with poor credit ratings has forced banks to do the same, said Roost mortgage broker Miranda Caird. In the rush for customers, banks are offering lures such as free holidays and cheap fuel.
"I think the mainstream banks are certainly throwing in all these incentives for new customers to come because they're aware of sophisticated products from non-mainstream lenders. They have competition in areas which they've never had before."
Not only are banks cutting costs to get customers, they're also offering loans to people with poor credit or a struggling business and, in many cases, banks aren't charging more for customers with poor credit, slimming their margins.
"You're seeing these banks entering a market that previously would be right out of their comfort zone.
"Banks are trying to get clients whereas once upon a time they didn't care. If you didn't fit the criteria it was, 'See you later, Joe'.
"People who might be higher risk are getting good deals, whereas five years ago they would have had to pay more," said Caird.
David Tripe, director of the Banking Studies Centre at Massey University, said the competitive nature of the market meant special offers and incentives were unsurprising.
"Banks will try to gain an opportunity for themselves in this competitive environment. Instances of special offers are to make a point of difference, to draw attention to themselves, and they make loans really attractive."
However, he said, a special offer would rarely be enough to make people choose one lender over another. While 50-year mortgages are not widespread, Tripe said his centre had come across some instances of 50, and even one 70-year loan deal.
However, Tripe said these were the result of adjustments being made in times of financial hardship for the borrower, and were not commonly offered to new customers in New Zealand.
Tripe said the rise in interest rates made by Reserve Bank Governor Alan Bollard on Thursday would not have an immediate impact on mortgage-holders, as only around 15 per cent of home loans are on a floating interest rate arrangement. As interest rates rise, customers may look around at better products on offer but mortgage broker Caird said customers should be wary of taking freebies. Holidays are often only available on one plan and that may not suit customers long-term.
"That's what you're getting today but does it suit you going forward, is the rate right, are the terms right, is the product right?
"Move beyond the petrol vouchers or the trip overseas and look at it long-term. Because to get out of the product is going to cost. Don't get into a deal with someone because they offer something short-term."
With all the products around, customers are struggling to understand what they're offered. Caird said banks should make that clearer.
"There's so much confusion out there about what people can get. It's not that difficult - it shouldn't be that confusing. The offerings just blow you away. But when you dig below the line, how competitive are they?"
Banks Bypassed
When Rachel Wilson wanted to refinance her mortgage she had a good look at what the banks had to offer - and was less than impressed.
"ANZ free discount offers from Mitre 10 just didn't cut it. I couldn't be bothered," she says.
"They were offering so many thousands of vouchers but they weren't great vouchers.
"Ten per cent, you can get that anywhere. It's really quite bizarre the things they come up with."
So she went back to her mortgage broker Steve Robinson and asked him to get some more offers. "I called Steve and said, 'I'm looking at refinancing. I'm not happy with my current interest rate or the people I'm with. Can you get me a better deal?' "
He came back with two offers, neither of which were from mainstream banks. After a few queries with Robinson she was more than happy with her new deal from Sovereign Lending.
She said despite assurances from some banks they would match any interest rate, she isn't interested in to-ing and fro-ing.
"They will do it once they're pushed but you don't want that, you want what they offer straight away.
"You don't want to go through the 'we'll match any other bank'.
"It's a waste of time really."
She's so unimpressed by the major banks that despite banking with ANZ she never approached them for a mortgage. Even the specials offered by BNZ, which aren't available from a mortgage broker, weren't as good as she got.
"Banks aren't really going to tell you what's the best option."
