NZ banks are paying customers to stay

Home loan borrowers are accepting cashback incentives to stay with their current banks amid competition. Photo / 123rf

By Susan Edmunds of RNZ

Home loan borrowers are taking cashback incentives to stay with their current banks, as competition continues in the mortgage market.

The focus on cashback incentives intensified through the end of last year, when ANZ offered cash payments equal to 1.5% of loan amounts to new home loan borrowers.

That prompted other lenders to match it and, in some cases, offer borrowers incentives to stay, too.

Helen Stuart, a mortgage adviser at Compass Mortgages, said she had seen “retention payments” offered by several banks lately, especially when someone had all their lending come off a fixed term.

She had one client turned down who still had a year to run on half his lending.

It is harder to change to lenders when some of the loan is still fixed, because it usually means a break fee has to be paid.

Stuart said it was common for retention payments to be about 0.4% of the loan amount. “But it varies.”

Campbell Hastie, of Hastie Mortgages, said it was still happening, although the activity had slowed since December.

“The number of retention payments we organised was probably higher than the number of refinance deals we concluded.

“That’s because by the time you paid the legal fees for moving, in many cases the retention cash payment looked about the same as the refinance cash less legal fees, not to mention the effort required to actually make the change.”

Jeremy Andrews, of Key Mortgages, said what people could get would depend on how long a customer had had their loan, whether they had taken a cashback previously and whether they had more than 20% equity.

“Some banks will refuse retention cash if the clients are already fixed in and they see it as of no benefit to the client to refinance to another bank. Some examples include if it’d be detrimental either in break fees – they’re already on higher than market rates, or if they would need to move to higher rates in the market, or the legal costs associated exceed any cashback benefit of moving.

“When retention cash is offered it’s typically a lot less than the same bank will offer for new business – often between 0.25% to 0.4% of the lending amount, compared to currently up to 0.9% or even 1% cashback for new or refinanced lending.”

Banks said it was a response to competition in the market.

ANZ said it was “fighting to hold on to and win new customers in a very competitive market”.

“Customers consider a number of things when choosing who to get a home loan from – pricing, product, approval times and other incentives on offer. At times we will offer deals like cash contributions for customers.

“For existing customers, we encourage people to connect with us to ensure they are aware of all the options available to them. We’ll always endeavour to give our customers the most competitive offer – our bankers can sometimes offer cash contributions to existing customers.”

Westpac agreed competition was fierce.

“We’re working hard to retain existing customers and win new ones. We consider a range of options to make sure we are providing great value for all our customers.”