Interest Rate War Predicted As Banks Look To Lend More

By RNZ

A mortgage rate war could be on the way as banks look to lend more money to potential home buyers.

Heartland Bank has stoked the fire with a historically low one-year fixed loan rate of 1.99 percent.

Meanwhile, house prices continue to defy Covid-19, with figures from the Real Estate Institute showing that the median home price is now $ 685,000.

Homes are also being bought at a faster rate, which means the number of new listings remains low.

Heartland Bank’s announcement that it will offer a 1.99 percent mortgage rate is likely to be followed by others, according to Massey Business School associate professor Claire Matthews.

He said a mortgage rate war was looming.

“I think there is very likely a little interest rate war,” said Matthews.

“This is usually the time of year that lenders have interest rate wars. We haven’t taken them seriously in recent years.”

Spring was often a time when people were buying houses, causing some excitement in the banks, Matthews said.

Banks may seek to compete, but it will depend on how many funds Heartland Bank has, he said.

If you had a modest-sized pool of funds, you said other banks may not be looking to compete.

“If Heartland has a more substantial amount of money, then they may feel like they need to do more to counter that, because there will be more loans that they could potentially lose.”

The low mortgage rates came at a time of a booming real estate market, which has been defying the impacts of Covid-19.

Figures from REINZ show that the median home price nationwide is now at $ 685,000, up from just under $ 596,956 a year ago.

In Auckland, the median price has soared 12.6 percent to $ 955,000.

In Canterbury, the median price increased 11.1 percent to $ 500,000 and in Wellington it increased 13.1 percent to $ 735,000.

Gisborne jumped the highest by 45.8 percent to $ 560,000.

Kiwibank senior economist Jeremy Couchman said prices were rising in part due to low mortgage rates and the Reserve Bank cutting the Official Cash Rate (OCR), which is currently at 0.25 percent.

“They also removed loan-to-value restrictions on new loans, which means certain types of borrowers, such as investors and new home buyers, can access credit much more easily and there is a significant lack of listed properties on this moment. “

There were signs that mortgage rates would continue to fall, with OCR declines expected next year, Couchman said.

The Reserve Bank had been concerned about inflation and employment in its medium-term outlook, he said.

“That suggests that if this continues, this outlook is still quite subdued, that [the Reserve Bank] they will probably act to make sure they comply with the mandate. So, you know, we could see more cuts in the cash rate early next year, that’s certainly our expectation. “

That should help lower mortgage rates even further, Couchman said.

REINZ CEO Bindi Norwell believed fear of missing something was contributing to the high demand.

“People expected it to go down in terms of price and it probably took a while to wait for that. But it hasn’t happened, so now people are thinking: wow, I need to enter the market if it continues to rise.”

Norwell said the market had also bucked the trend of normal election cycles, when it tended to calm down as potential buyers waited to see the outcome of the vote.

I did not expect to see a slowdown in the market in the short term as summer approaches, which is traditionally a busy time to buy and sell properties.