- SBS Bank has dropped its one- and two-year home loan rates to 3.99%, the lowest in four years.
- The rate is available to borrowers with at least 20% equity and includes a 1% cashback.
- Experts suggest rates may bottom out soon, with other banks likely to follow SBS’ lead.
One of the country’s smallest banks has quietly dropped its one- and two-year home loan rates to just under 4%.
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SBS Bank’s non-advertised rates of 3.99% for residential owner-occupied properties are the lowest to be offered by a New Zealand bank in four years.
It follows TSB Bank’s decision last week to drop its special one-year rate to 4.39%, and may herald a fresh round of rate cuts ahead of this month’s OCR decision.
GV Financial Services director Gareth Veale said 3.99% was a good rate and he expected other banks to cut their own one-year rates in response, although not by quite as much.
At the time of publication, the big five banks – ANZ, ASB, BNZ, Kiwibank and Westpac – were offering a one-year interest rate of 4.49%.
Veale said the SBS offer would be tempting for home borrowers with at least 20% equity because not only were they getting a lower rate, but it also came with 1% cashback of up to $20,000.
Veale felt the one-year rate was the best option because those who fixed for two years risked “locking in higher for longer than needed”.
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“Two years at the moment is hard to predict because we don’t know how the cards are going to fall,” he said.
A SBS Bank spokesperson said it was committed to giving back to borrowers and welcoming new members to SBS and offering a highly competitive interest rate such as a 3.99% for one and two years helped achieve this.
Squirrel Mortgages South Island managing adviser Nathan Miglani said it was great to see the “sharp rate” being offered to any home loan borrowers with at least 20% equity.
“Historically, SBS Bank has always done these crazy specials for just first-home buyers. This is the first time they are doing the special for the general public.”
SBS Bank had a history of dropping its rates ahead of the pack to attract more customers and grow its market share, he said, but others would likely follow suit.
GV Financial Services director Gareth Veale expects other banks to cut their own rates in response to SBS’ offer. Photo / Supplied
In September last year, OneRoof reported that it had undercut competitors with a six-month rate of 5.99% – almost one percentage point lower than the six-month rates publicly offered by the major banks.
“I’m not surprised at all because I think the way things are going, maybe in the next two, three or four months, that the majority of banks will be doing that.”
Miglani said the biggest shift over the last few months was that clients were starting to fix for longer.
Those who had been fixing their home loan for six months were now fixing for a year and those who had fixed for one year were pushing it out to two years, he said. Others were hedging their bets and fixing half the loan for one year and the other half for two years.
“We always suggest to people that if you need certainty and you don’t want to get worried, and your lending is under $300,000 / $350,000 then fixing shorter is still the best option.”
He tipped interest rates to hit the bottom in March-April and hover around the high 3%s or early 4%s and stay “low-ish” for the next couple of years.
The Reserve Bank is expected to cut the Official Cash Rate by 25 basis points to 2.25% on November 26.
Most of the big banks have dropped their five-year rates to below 5%. Last month, leading economics commentator Tony Alexander wrote that a five-year mortgage rate of 4.99% could be “as low as it goes” and was worth considering for those wanting to set and forget.
The former BNZ chief economist wrote in his OneRoof column: “If I were borrowing at the moment, I would personally be quite happy to fix five years just below 5%.”
Back in 2021, Alexander encouraged Kiwis to take advantage of the 2.99% five-year rate that banks were offering. Those who did avoided the crunch of rising interest rates and saved tens of thousands of dollars.
Alexander admits he didn’t know sharp interest rate rises were just around the corner, but he did think that the offer was too good to miss, concluding that the Covid era of super-low rates would come to an end at some point.
Similarly, he thinks current mortgage rates are at or near their trough point.
“The longer-term rates reflect expectations of what happens over the next five years, not the next few months,” he told OneRoof after last month’s OCR decision.
He said the Reserve Bank had a tendency to ease too much for too long, but then make “crunching interest rate rises” to get inflation under control.
Alexander said that spreading the risk – fixing half your mortgage at a shorter term and half at a longer term – was “probably a good idea most of the time”.
“The world we live in is increasingly uncertain – there are shocks all over the place. People shouldn’t always assume the shocks are going to be negative for growth and cause a lowering of interest rates. At some stage, we will get shocks in the other direction – no idea when.”
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