Random interest rate hikes are causing headaches for both borrowers and mortgage brokers, who are increasingly finding themselves with a drastically different offer from pre-approval by the banks to time of purchase.
Mortgage brokers told OneRoof a lot can change in the several months between a homeowner getting pre-approval and going unconditional, both in terms of which banks are offering the lowest interest rates and providing the best cashbacks.
And with some of the larger banks refusing to beat or even match what others are offering, it can result in a difference of thousands of dollars depending on the bank.
Kiwi Mortgages mortgage adviser Jatinder Singh said the bank offering the lowest interest rate can literally change overnight because last week it was Kiwibank and earlier this week it was BNZ. That changed within a space of a day as BNZ followed suit lifting its rates on Wednesday.
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But Singh warned the bank currently offering the lowest mortgage rates may not have the lowest for long as there were rumours that interest rates could rise again, especially after the election.
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He said there was always a risk to homeowners that the interest rates would be different when applying for a loan because they could not lock in interest rates until they found a property.
A buyer who had a pre-approval three months ago for $600,000 would have calculated their weekly repayments to be $890 a week based on a 6.69% interest rate, but would now be looking at paying $960 a week based on a 7.45% interest rate. “That’s $70 a week and $3700 a year. That’s a huge difference.”
Some of the larger banks were also refusing to match their competitors’ lower interest rates, he said.
“At the moment banks are very adamant about the rates they are providing. There’s a little bit of discount, but not much.”
And not only were interest rates continuing to rise with ASB’s one-year rate being the highest of the major banks at 7.45%, but the amount of cashback being offered to customers had dropped from about 1% 18 months ago to anywhere between 0.7% and 0.9%.
Loan Market mortgage adviser Dave Williams said the huge disparity in interest rates was making it a lot harder because mortgage brokers now not only had to find the bank that best suited the person’s situation but also check their rates weren’t through the roof.
BNZ was offering the lowest rates before Wednesday's hike. Photo / Ted Baghurst
It was completely different to 18 months ago when all the banks were offering 1% cashback and the banks would match every rate, he said.
“Each application I’m probably submitting to two to three banks at the moment because I know when it comes time to structure the home loan, the offer I’m going to get is going to be completely different between providers. One might be a little bit more cash and slightly higher rates and one might be slightly higher rates, but less cash – so it has to fall back on the customer.”
The fluctuating interest rates were impacting all his clients, he said, because almost every pre-approval had been signed off under a different interest rate and that could be up to half a percent higher now.
“That extra half a percent makes quite a difference if you are dealing with a $600,000 or $700,000 loan.”
Mortgage Managers mortgage adviser Stuart Will said it was frustrating that some banks had dug their heels in the sand and stopped being competitive, especially as they didn’t seem to have any loyalty or offer any incentives to existing customers.
“I think the frustrating part for us but for the clients more so is they could be sitting with a bank for one / two / three years /or this particular client was four years and there’s no reward for that loyalty – they are going, ‘nup that’s just the rate’. I know I can take them down to another bank and probably save them about $4000 a year and their bank just won’t even entertain trying to be competitive.”
However, Wills said it was not only about getting a good interest rate or cashback but also the loan structure and ensuring there was enough flexibility so people could pay them off faster if they wanted to.
“Most people probably think the difference between ASB and ANZ is what interest rate they are getting, where there are actually quite a few little technical differences in the loans as well.”
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