BNZ is throwing down the gauntlet to other banks in slashing its lowest mortgage rate today to below 7 per cent.
The 'mortgage rates war' was a key battleground four years ago when BNZ and ASB went at it hammer and tongs in the spring of 2004.
That tussle over 2 year fixed rates gave the housing market a second wind that did not run out until the end of 2007 and hamstrung the Reserve Bank's efforts to slow the economy.
The difference this time is that the battle is around the variable and 6 month rates and could restore some the Reserve Bank's monetary policy powers and lift the economy as it heads towards a difficult 2009.
BNZ has announced a new 6.99 per cent 6 month mortgage rate that makes it the lowest in the market, beating even Kiwibank's lowest rate of 7.29 per cent for one year and Westpac's lowest rate of 7.19 per cent for 18 months. ANZ and National's lowest rate is 7.3 per cent for one year, while ASB's lowest rate is 7.35 per cent for 6 months.
BNZ's new one year rate is 7.29 per cent, down from 8.29 per cent, while its 2 year rate is 7.35 per cent, down from 8.29 per cent.
This latest competitive first strike ahead of an expected 100 basis point cut in the Official Cash Rate next Thursday to 5.5 per cent has increased the competitive intensity that is likely to drag many 2 and 3 year fixed rate borrowers down towards a 6 month or variable rate as interest rates drop quickly. Most economists see the OCR falling as low as 4 per cent next year, meaning the variable and short term mortgage rates are likely to drop to 6-7 per cent.
Some economists, including Goldman Sachs and Deutsche Bank, are now forecasting a 150 bps cut on December 4.