The cuts come after a period of sustained increases in homeloan rates and at a sensitive time for the lending industry. Lenders have moved recently to restore margins and are believed to have responded to pressure from the Reserve Bank to end aggressive discounting.
Kiwibank says it is not cutting margins to offer the lower rates. Communications manager Bruce Thompson says the bank has maintained margins of between 70 and 100 basis points over wholesale funding costs and is still within this range at the new lower prices. This contrasts with other banks which had cut margins while discounting.
“Because a number of people are coming off good fixed rates from two to three years ago we want to make sure we are on their shopping list when they want to re-fix.”
The cost of wholesale mortgage funds has eased slightly in recent weeks but Thompson says Kiwibank’s move is not directly related to this. “This is a marketing campaign to ensure we capture some of the rolling money.”
Kiwibank has lowered all fixed-term rates by 5 to 20 basis points and is now charging 8.70% for six month and one-year terms, 8.6 per cent for two years, 8.50% for three and 8.60% for four and five year fixes.
The bank’s three year rate compares with 8.80% being charged by the major banks. Its two year rates compares with 8.90% from its largest rivals.
Kiwibank has a relatively small share of the mortgage market at around five per cent but its move will be watched closely by rivals.
The bank says there is a trend for borrowers to split their loans between fixed terms, particularly three and five years. Some are also borrowing a portion at the floating rate. Kiwibank’s floating rate is 9.50% compared with 10.05% charged by the five largest lenders.