The sub-4% rate is described as "excellent", and advisers say other banks may respond with their own cuts
SBS Bank has quietly slashed its one and two-year home loan rates to 3.99% - the lowest mortgage rates offered by a New Zealand bank in four years, and the only sub-4% rate currently on the market.
The non-advertised rates are available to borrowers with at least 20% equity on residential owner-occupied properties and come with a sweetener – 1% cashback of up to $20,000. Last week, TSB Bank made the decision to drop its special one-year rate to 4.39%.
This also precedes the Reserve Bank's expected 25 basis point OCR cut to 2.25% on November 26.
At the time of writing, the big five banks – ANZ, ASB, BNZ, Kiwibank and Westpac – are all offering one-year rates of 4.49%, making SBS's offer a full 50 basis points lower.
GV Financial Services director Gareth Veale told OneRoof the 3.99% rate was compelling and predicted other banks would respond with cuts of their own, though perhaps not as aggressively. He recommended borrowers opt for the one-year term rather than locking in for two years, suggesting it would avoid "locking in higher for longer than needed."
Squirrel Mortgages South Island managing adviser Nathan Miglani noted this was the first time SBS had extended such competitive rates beyond first-home buyers to the general public.
"Historically, SBS Bank has always done these crazy specials for just first-home buyers. This is the first time they are doing the special for the general public," he said.
Miglani predicted interest rates would bottom out around March-April, hovering in the high 3%s or early 4%s, and remain "low-ish" for the next couple of years.
Borrower sentiment remains cautious
April Hastilow, director and mortgage adviser at Factor Financial, said the overall sentiment among borrowers remains tilted toward shorter fixes. Where clients do opt for slightly higher 6-month rates, she says it's typically with a view to rolling onto longer-term fixes once the market stabilises.
"Most clients are choosing either 6-month or 1-year terms, feeling there's still more movement to come," she told NZ Adviser.
"I'm not seeing many commit to longer terms, and where they do, it's typically for less than a third of their total lending."
On competition, Hastilow said we shouldn’t expect to see an immediate industry-wide response to SBS's move - at least, not straight away. The pricing could be a strategic play by SBS to capture market share or rebalance their lending book in line with Reserve Bank guidelines around high and low loan-to-value ratio lending.
“While the rate is excellent for clients, it doesn't appear to stem from wholesale rate changes or margin shifts," she said.
“Occasionally, banks make these moves for market share or to rebalance lending books- for example, to bring their over-80% and under-80% lending volumes back in line with Reserve Bank guidelines. I’m not privy to whether that’s the case for SBS here.”
Despite the uncertainty around industry response, client interest has been strong, particularly those facing high break fees for existing lending. Hastilow says the sharp rate difference has “in some cases, tipped the maths to make breaking and refinancing worthwhile."
SBS Bank confirmed it was committed to offering highly competitive rates to both retain existing members and attract new borrowers, with the 3.99% offer helping achieve that goal.
With most big banks having dropped their five-year rates below 5%, and economists like Tony Alexander suggesting current rates may be at or near their trough, borrowers face an increasingly complex decision about when and for how long to fix their mortgages.
