How low will home loan rates go?

The banks have reignited their mortgage war for home loan customers with Kiwibank's two-year 3.99 per cent fixed rate the latest ultra-low deal to hit the market.

It follows on from Westpac's current one-year 3.99 per cent fixed rate and from historic low rates offered by all major banks late last year.

It also comes as Kiwis take on more debt, with total home loan lending last year jumping almost 10 per cent compared to 2017 to hit $64 billion, according to Reserve Bank of NZ data.

Loan Market mortgage broker Bruce Patten says the low rates showed competition for customers was fierce.

His brokerage had found major banks willing to price-match Kiwibank's two-year 3.99 per cent rate, even though they weren't officially advertising rates that low.

It indicated the low rates could last for a while yet, he said.

"It's really encouraging because it does suggest there is this margin there for the banks to keep these rates lower," he said.

Yet - despite the low rates and increased home loan lending levels - some pundits are warning a credit crunch could be on the way as banks run out of "good quality" customers to lend to.

This fight for quality home loan customers flamed into a mortgage war last November when ANZ - the country's largest bank - offered a one-year fixed term rate of 3.95 per cent.

It was the lowest offered by a major bank since just after World War II and other banks quickly folowed with ASB and Westpac matching it and BNZ offering 3.99 per cent over two years fixed.

By December 4, three of the four majors had put advertised rates back up over 4 per cent.

But despite only offering its historic low rate for a short period, ANZ said about 15,000 customers took advantage of the special.

"This helped grow our market share in November, contributing to more than $500 million in new home lending," a bank spokeswoman said.

She said the offer had made November its biggest month for home lending since August 2016 with total home loan growth 4.5 times higher than around the same period in 2017.

The low rates helped total home loan lending across the country climb to $64.3b last year, up by 8.9 per cent on the $59.1b lent in 2017, according to the RBNZ.

December was the ninth consecutive month total home lending had risen and the 11th month of rises in the past 12, CoreLogic research analyst Kelvin Davidson said.

While the last global recession was caused by banks' exposure to bad debts, Davidson said the RBNZ's figures indicated most recent home loans had been to the "best borrowers".

"Risky interest-only lending" to customers wanting to only pay off the interest payments on their mortgages rather than also paying off the loan amount had been restricted to less than 30 per cent of all approved mortgages, he said.

Banks were instead putting most customers through stringent approval processes in which they must have at least a 20 per cent deposit, meet income and expense tests and be able to pay off loans at theoretical rates as high as 7-8 per cent.

This indicated New Zealand's lending environment was on a "solid footing" and "should help to keep any fears about an Australian-style property market slump hitting NZ in the short term at bay", Davidson said.

However, Australasian Trading Management director Hamesh Sharma warned property prices could be hit by an upcoming credit crunch as banks run out of "good customers" to lend too.

Interest rates could also be driven up by new regulations that require banks to keep larger reserves of cash as a safety precaution, he said.

"These factors combined could make it much more difficult to borrow and service a mortgage, significantly hitting property demand as buyers will be unable to obtain lending," he said.

Loan Market's Patten said while business had been good at the start of this year, the banks had "definitely tightened up" their lending and this was likely to hit the market.

"We really see the next two-or-three years being quite a flat market," he said.

TIPS FOR SECURING A HOME LOAN

• The biggest thing banks are looking at are people's spending habits and expenses, Loan Market's Bruce Patten says. So people should make sure they understand their expenses and go to an adviser with a budget showing how much they earn and how much they spend.

• Where possible, make sure you save at least a 20 per cent deposit so you can get a cheaper interest rate. If you can't save a 20 per cent deposit, check whether your parents or a family member is willing to act as a guarantor for part of the deposit, Patten says.

• Prepare your paperwork before you see an adviser - this includes proof of your savings, Kiwisaver account and income.