One bank war

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Home Loan Report: Last week had with some good news for borrowers with Kiwibank dropping some of its fixed rate home loans in an effort to capture some of the refinance business in the market.

Thursday, May 24th 2007, 6:36AM

On Monday morning ASB dropped its 2 and 3-year fixed rates by 15 basis points, and its 4-year rate by 5 points in what looked like a sign it would take Kiwibank on.

However before morning tea on Monday those changes had been reversed.

This is perhaps a sign that the big banks are now becoming more loathe to get into straight out price wars with some of their smaller bank competitors.

The other developing trend is that Bank of New Zealand - the aggressor in the fixed rate home loan wars of recent years - is now doing its promotions in the floating rate space.

Its current offer is a discount on its TotalMoney floating rate. The rate it is advertising is 8.99% which is well below the 10.05% standard floating rates of the big banks.

Looking forward the news isn't too positive for borrowers with discounting at an end for now and the outlook is for further rate increases.

The economic news continues to be strong; the residential property market, keeps posting significant gains month-after-month, latest labour market figures are strong, the Budget is stimulatory and consumers keep spending.

This has lead economists to the view that the Reserve Bank is highly likely to keeping increasing its official cash rate, meaning short to mid term rates will keep increasing.

The only good news is that longer term fixed rates may fall later this year, due to changing economic circumstances in the United States.

What's the best deal at the moment? Well without a lot of deals around the question comes down to what it the most appropriate term?

The general view is that fixing for between 18 months and two years looks the most appealing of (of an unappealing bunch). Longer term rates are at historically high levels and the chance of any home loan rate returning to its historic average any time soon look slight.

What's on offer? Currently main bank standard floating rates are sitting at 10.05% and six month fixed terms are at the 9.05%. As you move out the yield curve rates decrease with two year rates of 8.90% and five year rates of between 8.60% and 8.70%.

But, as mentioned earlier none of these rates can be considered cheap.

To compare rates from all lenders visit the Mortgage Centre at www.goodreturns.co.nz

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