$5000 cash bonuses and hidden deals: ‘If your bank is not competing, move to another that is’

The news that New Zealand’s inflation rate has fallen to its lowest level in three and a half years will put pressure on banks to drop their mortgage rates, brokers have told OneRoof.

The Consumers Price Index figures for the third quarter of this year showed annual inflation had dropped to 2.2%, lower than most commentators had expected and within the Reserve Bank’s target band of 1% to 3%.

Andrew Chambers, CEO of Tella home loans, said the drop in inflation was welcome news and could be the impetus for a sizeable cut to the Official Cash Rate (OCR) at the end of next month.

“We might see a Christmas present in the form of a bigger OCR drop than we expected,” he told OneRoof.

Chambers expects banks will drop their one-year fixed rate to 5.59%, which ANZ put in place ahead of the Reserve Bank’s 50 basis point cut of the OCR earlier this month.

People with mortgages coming up for renewal should fix at that rate if they get the chance, he said. “I think one year at 5.59% is a great rate.”

He said those trying to chase a better deal may not end up saving all that much. “It’s a bit like KiwiSaver – you could try and move your KiwiSaver to the most high-performing fund every year and try and game it but actually, staying put and doing nothing is just as good as moving things around,” he said.

“I sort of look at it the same way with home loans. If you want a sit-and-forget strategy for your home loan, just leave it rolling on one year for its entirety – that’s the most effective strategy you can get.”

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Gareth Veale, from EasyStreet Mortgages, agreed that the drop in inflation would put pressure on the banks to cut their rates.

“Inflation is on its way to being under control. That bodes well for a further rate cut by the Reserve Bank next month.”

He said banks could drop their own rates ahead of the Reserve Bank’s last OCR decision of the year, on November 27, because there was a lot of competition in the market.

He said ANZ’s 5.59% one-year rate was the market leader, although ASB and BNZ had both matched the rate but were not advertising it.

Tella CEO Andrew Chambers: "If you want a sit-and-forget strategy for your home loan, just leave it rolling on one year for its entirety - that’s the most effective strategy you can get." Photo / Supplied

“That to me suggests that that rate is going to be around for longer now and we should see some downward movement in the six- and 12-month rates, which is good.”

Only those in the know would get the 5.59% rate, he said, which he thought was unfair and said people needed to be up on the latest rates, or to get themselves a good mortgage broker who was in the know.

Veale said banks were also paying significant cash bonuses for refinancing with them, with some people getting $5000 in their pocket.

“I think the banks are competing for the business, which is a good thing to see, but you can always compete harder and some banks are not competing as well as they should. If your bank is not competing, move to another that is.”

Stephen Massey, from Loan Market, said hidden rates tend not to stay hidden for long. When ANZ released its 5.59% rate earlier this month, he saw it within the hour on Facebook, TikTok and Instagram.

“From time to time some of the banks will send out a release to selected advisers or the wider adviser network to let them know they’re doing a particular special.”

The ANZ one-year rate was the first genuine special rate for some time, he said.

“It was 50-60 basis points under any other rate in the marketplace. I think it was almost done intentionally for the drama, to stimulate activity. It’s certainly the first one in recent times of that nature.”

Massey said while the OCR had become the focal point in recent years, because of high inflation, it was not the only reason banks dropped interest rates.

“I’ve never known it to be talked about so much. [But] we’ve never seen the OCR increase in the speed and the way it did as we saw over the last 18-24 months. We saw mortgage rates go down to 2.3-to-2.5% and then we’ve seen them over 18 months get up to 7%-plus. We’ve never seen that environment before.”

Also stimulating activity was the banks’ decision to cut their servicing rates from around 8.9% to around 8%. That had had a significant impact on people’s borrowing capacity. Whereas before, first-time buyers may have only been able to get a loan of $600,000, now that would be closer to $700,000.

Henry Moore, of Liquid mortgages, said the fact inflation was lower than expected meant there was more pressure on the Reserve Bank to speed up their loosening cycle.

“It’s crystal ball stuff but you’ve got to think it’s at least [a cut of] 0.5 percentage points. The CPI itself doesn’t have a direct impact on the rates but the data pushes the Reserve Bank to make moves.”

He, too, advised borrowers to negotiate with their bank: “You should always negotiate. The bank’s a business and they are competing for your business so you should negotiate.”

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