Interest rate war spells good year for homeowners
New Zealand's mortgage lenders could be gearing up for an interest rate war, with two banks already slashing their home loan rates.
A Christchurch mortgage broker said homeowners should "do the numbers" to see whether the potential savings of the lower rates would outweigh the cost breaking out of a current fixed rate.
Bank of New Zealand and SBS have kicked off the first flurry of activity for the new year with SBS attempting to lure Kiwis back from holiday with a "special" three year fixed term of 4.65 per cent, the lowest on the market.
It was quickly overtaken by BNZ, which launched its own 4.49 per cent special on Monday morning.
The bank dropped its two year rate to 4.39 per cent, also leading the market in that category.
Like most home loan specials, the deals come with strings attached, requiring at least 20 per cent equity in the property and salary paid into a transaction account.
Garth Reid, 31, and his partner bought their first home in Christchurch's northwestern suburb of Bishopdale in late 2011.
"We were worried about the prices starting to skyrocket after the earthquakes so we tried to get in early."
The couple decided they wanted a fixed interest rate.
"I think that will always be the way we go," Reid said.
"It's so much easier to budget for . . . you don't have the constant worry of what you need to pay so it's just good for certainty."
Reid said they fixed at 5.95 per cent in 2014 amid predictions interest rates could top 7 per cent.
Their current term does not expire until the end of the year.
"We looked at getting out of it but it would be more expensive to do that, with the cancellation fees."
Rob Parsons, of Christchurch's Mortgage First, said breaking a fixed rate term could prove cost prohibitive for some, but worthwhile for others.
"It also depends whether you care more about the long term or more about how much comes out of your back pocket each fortnight," he said.
Parsons said his firm received lots of enquiries from homeowners wanting advice about whether or not they should break a fixed rate term.
"For people fixed on high fives or low sixes... seeing much lower rates advertised makes them cringe."
Parsons expected 2016 would be an "interesting year, pardon the pun".
The best fixed mortgage rates in all categories out to five years are now under 5 per cent.
SBS had briefly offered a rate under 4 per cent, the lowest advertised rate in several decades, but ended the offer earlier this month.
Fellow locally-owned lender The Co-operative Bank is leading the market across five categories.
Chief executive Bruce McLachlan recently said his personal view was that the current rates were definitely the bottom of the cycle.
"I would expect that over time we will see them edge up."
Floating mortgage rates have also fallen after the Reserve Bank cut official interest rates in December.
While the official rate of 2.5 per cent is now at its lowest since being introduced in 1999, some economists expect further cuts to come this year.
The Reserve Bank's next review of the benchmark rate will be announced on January 28.
HOTTEST BANK MORTGAGE RATES
Floating: 5.6 per cent - ICBC
One year: 4.49 per cent - The Co-operative Bank
One year "special": 4.25 per cent - HSBC
Two year: 4.49 per cent - The Co-operative Bank
Two year "special": 4.39 per cent- BNZ
Three year: 4.75 per cent - The Co-operative Bank
Three year "special": 4.49 per cent- BNZ
Four year: 4.89 per cent - The Co-operative Bank
Four year "special": 5.15 per cent - ASB
Five year: 4.99 per cent - The Co-operative Bank, HSBC Premier
Five year "special": 5.25 per cent - ASB
Source: Good Returns