SBS home loan interest rate the first to drop below 6 per cent since mid-2023

SBS is offering a three-year home loan deal with a 5.99 per cent interest rate. Photo / 123RF

Most homeowners are taking up short home-loan deals because they believe interest rates will fall soon, but one bank is trying to lure customers in on longer contracts with a new 5.99 per cent three-year fixed term.

Smaller co-op bank SBS has just put out the market-leading interest rate, which is well below the best three-year terms of 6.65 per cent being offered by the main banks.

SBS’ two-year (6.69 per cent), four-year and five-year terms (both 6.19 per cent) are all also below the best rates being offered by the main banks.

The move appears aimed to attract borrowers who might be fearful interest rates could go up rather than down in the near term.

It is also the first home loan deal to be offered below 6 per cent since July last year, according to financial website Interest.co.nz.

It comes as analysts CoreLogic this week found a record number of homeowners fixed their mortgages on one-year terms in February, suggesting they expect interest rates to fall soon and don’t want to be locked into long contracts and potentially miss out on future low rates.

“The trend to fix in the short term reduces the risk of overpaying later, if and when mortgage rates drop,” CoreLogic’s Kelvin Davidson said.

The homeowners’ positive outlook adds to new data showing inflation had eased to its lowest levels since June 2021, and national house prices were recovering slightly after growing 2 per cent in March.

Davidson, Corelogic’s chief property economist, said 56 per cent of new home loans taken out in February were on one-year terms compared to 36 per cent in December.

The last time one-year terms were so popular was during the Covid pandemic, when interest rates were falling to record lows and homeowners fixed short in the hope they could sign up for even lower rates a year later.

But while most homeowners have been willing to pay more now on one-year terms in the hope rates drop in 2025, there are also signs many are battling to meet their payments.

Loan Market mortgage broker Bruce Patten said his team have been getting more requests from homeowners wanting to ask their banks to allow them to make interest-only payments on their mortgage.

That’s due to increasingly tough economic conditions in which increasing numbers of people have been losing their jobs, Patten said.

Data by credit analysts Centrix also showed the number of homeowners behind on their mortgage repayments rose to more than 21,800 in January, up 16 per cent year-on-year.

The percentage of mortgages in arrears climbed to 1.47 per cent in January, up from 1.40 per cent in December.

This was the highest level recorded since before Covid - mortgage arrears were at 1.49 per cent in March 2020. However, the figure still remains low historically.

Against that backdrop, SBS’ new mortgage rates appear to be an attempt to catch those more worried about the market or looking for greater certainty with payments before the housing market heads into the traditionally quieter winter.

Ben Leahy is an Auckland-based journalist covering property. He has worked as a journalist for more than a decade in India, Australia and New Zealand.