Mortgage wars: Banks prune interest rates

Fiona and Nigel Clapp are working hard to become mortgage-free. Photo / Janna Dixon

Sharper offers reflect expectations OCR will stay put this year, say economists.

Banks have started cutting interest rates as the busy house-hunting season heats up.

From today, mortgage holders and prospective home buyers with at least 20 per cent deposit are being offered a three-year fixed home loan rate of 5.59 per cent at BNZ, down from the bank's previous three-year rate of 5.99 per cent. Kiwibank also cut its two-year rate by 20 basis points to 5.55 per cent. According to industry experts, consumers should expect better deals from other major banks soon.

The lower rates could cut years off some mortgages, saving homeowners thousands of dollars in interest repayments.

They come as QV's latest figures, released yesterday, show Auckland house values surged by an average of $68,309, or 9.8 per cent, last year to $761,858. Nationally values were up 4.9 per cent, or $22,652, to $488,674.

Both Shamubeel Eaqub, New Zealand Institute of Economic Research principal economist, and the Real Estate Institute's chief Helen O'Sullivan said house hunters and homeowners who were able to re-fix their mortgages could benefit from the lower interest rates.

"Given how competitive the home lending market is, I can't imagine the other banks will not respond," Ms O'Sullivan said. "If you can find an offer from a bank, you should definitely be asking your own bank to match it if you're re-fixing," she said.

Mr Eaqub said the new rates reflected an expectation from banks, financial markets and economists for interest rates to remain steady this year.

"The Reserve Bank will not do anything this year and as a result mortgage rates have come off right across the board," he said.

"With lower wholesale rates, banks can afford to offer much sharper rates, which they're doing.

"When one of them does it all of them do it - even if they haven't advertised it, punters should be going to their bank or their mortgage broker asking for a better deal," he said.

Keeping cash payments the same with a lower rate reduced loan principals faster and "can take years off your mortgage".

The Reserve Bank official cash rate, the basis for how banks set their rates, is 3.5 per cent.

A breakdown of the latest QV data showed Auckland house values jumped 4.2 per cent in the final three months of 2014 alone, with values now 39.4 per cent higher than during the previous peak of 2007.

Both Westpac and ASB said the banks were monitoring the home loan market. A spokesman from ANZ said it had nothing to announce last night.

Kiwibank spokesman Bruce Thompson said its two-year rate was available to anyone with a 20 per cent deposit and existing mortgage holders who were looking to re-fix.

Auckland couple's winding road to mortgage-free existence

Manurewa couple Fiona Clapp, 40, and her husband Nigel, 45, are about to go mortgage-free, after they sell their third home and build in Pokeno.

The pair bought their first home in 1997 in the Greenmeadows area of Manurewa for $156,000. At the time, they took out a 30-year loan with Countrywide, with a 5 per cent deposit. Their interest rate was 13.95 per cent.

They sold up and bought their second home in Wattle Downs in 2004 for $333,000, with an interest rate of about 9 per cent, taking out a second mortgage, meaning they owed the bank $258,000. In 2012, they amalgamated their mortgages and bought their current home near the Auckland Regional Botanic Gardens for $557,000. The interest rate was around 6.25 per cent.

"The profit margin was quite good so we ended up with a mortgage of $145,000," Mrs Clapp said.

They have 16 years remaining on their mortgage, owe $126,000, and the rate is 4.99 per cent.

The Clapps have bought land in Pokeno for $203,000 and will build at a cost of about $340,000, so they will likely be able to pay off their mortgage once they sell their present house.