The home loan environment could be "as good as it gets" for borrowers, although the potential remains for mortgage rates to track even lower, says Westpac New Zealand chief executive David McLean.
Speaking yesterday after the bank reported a 2 per cent lift in first-half cash earnings to a record $441 million, he said: "Everything's been positive for borrowers and I think the signs are that that will continue."
With inflation benign the Reserve Bank is expected to keep the official cash rate on hold at 3.5 per cent for the foreseeable future.
Wholesale interest rates - what banks pay to secure funding - are favourable.
"It's is about as good as it gets," said McLean. "It might get a little bit better, but there's not much more upside for borrowers."
A special two-year rate of 5.39 per cent is being offered by Westpac, while ASB is offering the same rate across two- and three-year loans.
Westpac New Zealand reported a 5 per cent increase in net loans to $66.6 billion in the six months to March 31.
Deposit growth of 6 per cent, to $51.5 billion, had funded 90 per cent of lending growth, the bank said. Impairment charges on bad debts rose to $31 million from $4 million a year earlier.
McLean said it was a concern some borrowers might become complacent about low mortgage rates and not consider the risk of the rates going up at some point.
"From a risk management point of view, we don't want people borrowing to buy a house ... based on these rates," he said. "We have tests to try and make sure that we're not writing business that is marginal at [the current] interest rate."
The bank said its greater than 80 per cent loan-to-value lending now accounted for 6.6 per cent of new lending, below the 10 per cent limit set by the Reserve Bank in October 2013.
The ratios were introduced with the aim of cooling a surging property market, particularly in Auckland and Canterbury.
McLean said he couldn't foresee any factors that could cause a sudden downturn in house prices. "But having said that, life is always full of surprises."
Westpac New Zealand's Australian parent reported a drop in first-half profit to A$3.61 billion, from A$3.62 billion a year earlier.
Westpac's dual-listed shares closed down 3.7 per cent yesterday at $36.90 on the NZX.