In the past banks competed for your home loan business primarily over the two-year term, occasionally there were skirmishes elsewhere, but now it looks like the battleground is in floating rates.
In the past couple of weeks we have seen a number of lenders chop their variable rates to levels which are now at historical lows.
Home owners and property investors will be pleased, as it is bringing down their interest costs. People rolling off fixed rates onto floating are seeing their interest rates fall from around the 7.50% mark to 6% or less.
No doubt the Reserve Bank is happy too, as there has been a huge amount of criticism that banks hadn’t lowered their floating rates, even though the official cash rate had come down.
It seems pretty clear that the banks were increasing their margins on this business to levels which looked high when compared to recent historical data.
The cuts we have seen in the past fortnight back up this claim about fat margins and may well be seen as an admission from lenders that they were doing very well in this part of their lending book.
The current battle is different from previous ones and fascinating in terms of where lenders are positioning themselves.
First up, not all the banks have included themselves in this fight. In the past week it has been ASB, BNZ and Westpac who have joined in. Our biggest bank, ANZ National, has stayed out of it so far and made no meaningful changes; likewise the normal aggressor, Kiwibank, is sitting quietly at the moment.
With the competition, lenders have changed their position in the market since the start of this year. This table shows that in January BNZ’s standard floating rate was one of the least competitive, now it is one of the better on offer.
Likewise, ASB has changed its position on the league table too.
But to confuse the picture Westpac and BNZ have made their best offers in highly targeted products. Westpac has chosen its Everyday Choices revolving credit loan product as the one which it offers the best rate in.
This move is a little gutsy as many people don’t like or necessarily understand revolving credit (sometimes called line of credit) loans. One of the reasons is that they feel the balance owing can creep up quickly, increasing personal debt levels.
Meanwhile, BNZ has chosen its offset product, TotalMoney, as its lowest priced variable rate loan. Again, offset accounts are not widely used or understood in New Zealand.
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