Mortgage rates have hit rock bottom as banks offer thousands of dollars in cash and slash advertised interest rates in response to pressure from home-buyers for deals.

A mortgage broker has described the market as "frantic" and "the best it's ever going to get" after negotiating rates as low as 4.75 per cent for clients.

"Banks are cutting each other's lunch. They are incredibly good rates ... but these kinds of deals are not sustainable the more people jump on the bus."

Advertised fixed-interest rates on home loans are at historic lows, but customers can save thousands more dollars by haggling for even lower rates. The Herald has spoken to new home-owners who negotiated large cash bonuses and heavily reduced rates.


One, who asked not to be named, was given cash as well as a 4.9 per cent one-year rate after asking ANZ to match Kiwibank's 4.99 per cent offer.

Another couple switched from ASB to ANZ after being offered $2000 in legal costs and cash back and 0.5 per cent off the advertised floating rates.

Kiwibank today ends its 4.99 per cent one-year home loan offer, five weeks after its start helped to trigger the flurry of discounting by banks.

A Kiwibank record of more than $200 million has been loaned through the offer, which cut the bank's rate from 5.65 per cent.

In the past fortnight, the big banks have cut fixed-term mortgage rates. Yesterday, most standard one-year rates were advertised at 5.25 per cent.

Floating rates - which a majority of New Zealand homeowners are on - have remained stable.

But financial commentator Bernard Hickey of said these were even more ripe for negotiation than fixed rates.

People who met the right conditions could shave around 0.5 per cent off their floating rate just by asking.

"Floating rates tend to be set-and-forget affairs. You don't have to go back every six months to two years. They just sit there and you pay the bill.

"Banks usually charge the advertised rate for floating rates. And people don't know that they can challenge that," Mr Hickey said.

People were surprised when haggling worked because banks "retreated into their shells" in 2008-09 and were more cautious about lending.

"They weren't doing the deals. Now they are. And of course they're not going around advertising the fact they are doing deals. Most of this activity is happening below the line, undercover."

Savings over the term of a loan can be large. A $500,000 mortgage over 20 years which cost 6 per cent 12 months ago could now be as low as 4.75 per cent - a repayment difference of $162 a fortnight.

John Bolton, owner of Squirrel mortgage brokers, said advertised interest rates were likely to stay low for some time.

But the sort of negotiation that had secured him a one-year rate of 4.75 per cent and a two-year rate of 4.99 per cent was unsustainable.

"It's like any business. You tend to price the new stuff [mortgage applications] coming in more aggressively, and hope the existing stuff just sticks and happily pays whatever rate you tell them.

"But what's changed is that was OK for a little while, but now all of the existing customers have woken up."

Institute of Economic Research principal economist Shamubeel Eaqub said because rates were at historic lows, they were "more likely to rise than fall".

'Bit of give and take' - and down it goes

Negotiating interest rates can be confusing for first-time homeowners. One of the main decisions buyers must make is whether to take a floating or fixed interest rate on their home loans.

Auckland couple William and Cheryl Chong, who bought their new home at the end of June last year, decided to chance it under a floating rate.

For customers like the Chongs, signing up to a floating rate is all about the discount they can negotiate with the bank.

Mr and Mrs Chong negotiated their floating rate discount up from 0.1 per cent to 0.5 per cent.

"We went for a loan for our first house," Mr Chong said. "I talked to someone at the [ASB Howick] branch and the floating rate at the time was 5.75 per cent. He gave me a 5.65 per cent rate, as a first-home buyer's discount, which I thought was really helpful."

This gave Mr and Mrs Chong a 0.1 per cent discount on the floating rate.

Almost one year later, interest rates were falling and they decided it was time to try for a bigger discount.

"I thought I'd get in touch and just flick an email to the relationship manager, who was the guy who set me up with the first home loan" said Mr Chong

"I just asked if there was any chance that you guys could have a go at looking at the rate."

The 26-year-old said the bank initially offered a 0.4 per cent discount on the floating rate.

"We talked back and forth, and then he said, 'The max I can do is a 0.5 per cent discount'."

Under the current ASB floating rate of 5.75 per cent, this gives the couple an interest rate of 5.25 per cent.

"We were pretty happy with this," said Mr Chong.

The couple, who now have a 3-week old daughter, Eden, hope the deal will help them to save more money.

"We haven't reduced our repayments to the bank," said Mr Chong. "Hopefully that means a bit of extra cash in the future and for Eden."

He recommended that people maintain good relationships with their banks.

"I didn't even have to meet [the bank] - just emailed back and forth. But, if you've never talked to your bank manager since getting your loan, it would be pretty rude to just call in and say, 'Hey,give me a discount.'

"It's a bit of give and take."

How to haggle with your bank

Financial commentator Bernard Hickey says Kiwis should realise that banks often do not advertise their best prices or rates.

"They often give their very best rates to the customers who push them the hardest."

Mr Hickey, editor of the website, said many New Zealanders were reluctant to challenge financial services.

"I think there's a residue of nervousness from a long time ago, when the bank was the one with the power and there was a lot of rationing of credit.

"That's not the case any more - the banks have plenty of cash to lend, they're strong, they're profitable, and now they're competing hard."

He suggested would-be borrowers could call their bank and say they had heard other customers were paying lower rates and they wanted to know the best rate the bank could offer.

If the bank was unresponsive, they could approach other banks and threaten to switch.

Another option was to use a mortgage broker.

"You can go to a broker and say, 'this is what I'm paying with my bank,what's the best rate you can get for me?"'

People could also push banks for discounts or waivers on legal bills, break fees and valuation costs.

Claire Matthews, a senior lecturer with Massey University's banking studies department, said banks looked for long-term relationships so people could increase bargaining power by offering to bring other business to them.

Customers had to be careful not to make empty threats.