The main banks are now advertising mortgage rates of 4.49% for 12 months. Photo / RNZ
By Susan Edmunds of RNZ
A couple who regretted their decision to fix their home loan for five years in 2023 have been unsuccessful in a complaint against their bank.
They complained to the Banking Ombudsman, which issued a case note on its decision this month.
It said the couple fixed their home loan for one year in 2021 and 2022. But in 2023, they refixed at the lowest rate available, which was for five years.
Reserve Bank data shows that through 2023, the average special five-year rate was between 6.29% and 6.66%.
This year, they contacted the bank to ask about breaking their fixed term.
The main banks are now advertising rates of 4.49% for 12 months.
The couple said the bank had misled and pressured them into refixing the loan for five years.
The woman said she relied on advice from bank staff and wanted the bank to waive the cost of breaking the fixed term, which had been estimated at $45,000 to $50,000.
The ombudsman scheme said it reviewed the correspondence the couple had with the bank,
“There was no evidence bank staff pressured [her] when they refixed in 2021 and 2022. In 2021, [she] chose to fix for one year at the lowest available rate after being offered hardship assistance, which she declined. In 2022, both customers again chose a one-year term at the lowest rate.
“In 2023, [the customer] requested a home loan review session with a senior business manager. [She] recalled the manager saying interest rates were likely to rise, and said she relied on this advice when choosing to fix for five years. The bank did not record the conference call with her, although the manager shared the standard bank disclosures with her, and the manager’s follow-up email summarised the scenarios discussed and interest rate options. The email did not contain any advice or suggestion to fix for a five-year term.”
The ombudsman noted the woman asked about the five-year rate and accepted it, with a $3000 loyalty payment, which required her to stay with the bank for at least three years.
“[She] was given time, options and accurate written information before she made the decision. We found no evidence of pressure or misleading conduct by the bank.
“We also considered whether the bank properly disclosed early repayment charges. The original loan agreement and subsequent variation letters explained how these charges were calculated and noted that such charges ‘could be large’. The bank met its obligations under the Credit Contracts and Consumer Finance Act 2003.”
The complaint was not upheld.
Mortgage adviser Jeremy Andrews, of Key Mortgages, said he did not see many cases like this.
“I did have a case last month where a client fixed his loan in for five years with his bank directly at 6.39%. He didn’t receive any specific advice from the bank that there was a good chance of rates dropping over the next five years, and if they did, he could be looking at significant early payment penalties or break fees.
“He was horrified to find out how much the break fees were, even for a small mortgage with just over three years remaining, well into five figures of fees.
“Once we had his break fees on his mortgage, we ran figures through our break cost benefit calculator. Whilst his fees were substantial, it was looking in his favour at the time to pay the break fee to move on to lower rates at the most similar remaining term.”
He said it was part of a mortgage adviser’s job to check clients’ goals and help structure their mortgage to achieve them.
“We discuss the risks and costs of break fees, to confirm understanding before fixing in long term, and potential implications if there’s reasons they might want to restructure or break their fixed rate in future.”
Longer terms were starting to become more popular again, he said.
– RNZ