One of the country’s smaller banks has slashed its one-year interest rate for first-home buyers to 6.14%, but mortgage brokers and economists aren’t expecting copycats anytime soon.
SBS Bank’s attention-grabbing one-year interest rate, which is at least 1% lower than the rates currently offered by other banks, is likely to pique people’s attention as the higher interest rates and cost of living take its toll on many households.
OneRoof contacted SBS Bank with questions including why they had dropped the rate when other banks had not and why it had come just weeks before the next Official Cash Rate announcement.
In response, an SBS Bank spokesperson said its award-winning FirstHome Combo package offering the 6.14% interest rate was “market-leading” and “reflected our commitment to our purpose of ‘Helping Kiwis find a place to call home’.”
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The 6.14%, one-year fixed-rate was the lowest in the market at the moment, but the bank regularly reviewed all its rates to continue to offer the best values to its members, the spokesperson said.
But EasyStreet Mortgages financial adviser Gareth Veale adviser said there were a “few hooks involved” with the Southland bank’s offer aimed at first-home buyers.
The interest rate only applied to first-home buyers who had a 20% deposit or more or those purchasing through Kainga Ora’s First Home Loan scheme, which underwrote the loan so only a 5% deposit was required. The maximum cashback on offer was $4000 and included the borrower moving their KiwiSaver.
Veale said it might be a good option for first-home buyers who had less than a 20% deposit and were eligible for the Kāinga Ora scheme, but warned it might not suit others who did not fall into either of those categories.
“The headline interest rate isn’t always the biggest factor that goes into your home loan decision.
EasyStreet Mortgages financial adviser Gareth Veale says the headline rate is only one of many factors to consider when choosing a bank. Photo / Supplied
“That 6.14% – that’s great, that’s a discount for the first year, but will that mean in the second, third, fourth year that you are getting competitive rates? It’s a short-term sugar hit that might work for people, but in the long run potentially the interest rate difference might not be that good and depending on the specific deal the difference in cashback could mean another bank is better.”
Total Mortgages mortgage adviser Jordan Cameron said some first-home buyers were finding that while some banks might have slightly higher interest rates than others, they might be offset by other factors such as easier application processes, significantly higher cashbacks and better support.
Other banks such as Westpac and Kiwibank were offering special interest rates – albeit still higher than the SBS Bank offer - for first-home buyers under the First Home Loan Scheme and there was no low equity margin.
Cameron said a lot of people were currently fixing their mortgages for either one year or even six months.
“They are not really anticipating the rates to go up at all, so worst case scenario if there isn’t a drop in the next months you just roll it over for another six months.
“The drop is certainly coming, it can’t be too far away. There are a lot of people out there that are hurting and I think they are probably going to have to do something about it sooner rather than later.”
Westpac chief economist Kelly Eckhold does not expect interest rates to drop until at least September this year. Photo / Fiona Goodall
Infometrics principal economist Brad Olsen said the SBS Bank rate appeared to be targeting a niche market.
“Is it a rate everybody would like? Absolutely. But by the sounds of it, not many people will.”
While some banks such as ASB and BNZ had recently trimmed some of their interest rates, he did not expect any major cuts to happen until at least November this year which was when the Official Cash Rate was also expected to start dropping.
“Some banks have been edging some rates lower here and there over the last couple of weeks, some of those figures are sitting a little bit lower especially in the two-year sort of area, but for the moment we are not expecting any more wholesale changes, there’s just a bit of competitive pressure that’s moving things at the margins.”
Instead, he put the recent interest rate cuts down to banks trying to “jockey and lock in a bit more lending” rather than a sign that they were all falling.
“House sales haven’t been fantastic and that means they are trying to keep up the amount of lending and new business that they are bringing in and there’s not as much to go around so you’ve got to be offering something to make sure you are attracting them and someone else isn’t.
“So, I suspect it’s those competitive pressures particularly with sales volumes remaining fairly subdued, but people listing their homes on the markets are fairly high. There’s a lot of people who want to sell and not that many people that are able to buy so there’s a little bit more of that competitive energy coming through.”
Westpac chief economist Kelly Eckhold said SBS Bank’s specific 6.14% one-year interest rate was noticeably lower than its competitors, but he did not forecast an overall drop in some of the shorter-term interest rates until at least September.
He predicted the OCR was likely to fall in early 2025 and expected banks to anticipate this and adjust interest rates a few months earlier.
“I think if you want to see the short-fixed rates move noticeably lower, you are probably needing to see the Reserve Bank OCR move down.”
The recent cuts particularly in longer-term interest rates, which included Westpac dropping its three-year fixed rate to 6.39%, reflected the fact that international interest rates had drifted down a bit in the last month, he added.
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