ASB ending its low interest lending campaign to borrowers who are building new houses

ASB is bringing the curtain down on its Back My Build home loan offer, through which it's lending to borrowers building houses at a floating interest rate of 1.79%.

Launching the offer in May 2021, ASB said the 1.79% interest rate would be available for up to three years from when a customer makes their first draw-down. A variable, or floating, rate means customers are able to make lump sum payments or fix their rate at any time.

"ASB launched Back My Build in May 2021 with a view that it would be available for approximately 12 months and anticipated approving lending for around 1,000 new builds," ASB’s Executive General Manager of Retail Banking Craig Sims says.

“Just four weeks on from launch, we’d received 3,000 applications for more than $2 billion in lending. As we close, we’ve received more than 11,000 applications, and more than 4,300 builds are underway. Our lending threshold has been reached ahead of schedule due to this overwhelmingly positive response,” says Sims. 

ASB says it's using money borrowed through the Reserve Bank's Funding for Lending Programme (FLP) to fund its Back My Build lending. 

The FLP was launched by the Reserve Bank in December 2020 to provide additional monetary stimulus to the economy to help the Reserve Bank meet its consumer price inflation and employment remits by reducing banks’ funding costs and lowering their borrowers' interest rates.

The three-year FLP funding is available to banks over a two-year period running until December 6 this year. The FLP allows eligible banks to borrow directly from the Reserve Bank at the Official Cash Rate (OCR) with the borrowing rate adjusting over the term of the transaction if the OCR changes. The OCR was 0.25% when the FLP launched and is 1% now.

To date ASB has borrowed $2.9 billion through the FLP.

Of late ASB has been pushing fixed-term mortgage rates up above those of its main rivals, with increases of between 20 basis points and 55 basis points. As David Chaston reported on Thursday, the current ASB one-year carded, or advertised, rate is still below 4%, just, but that is about the only term where the bank is now rate-competitive.

ASB says the Back My Build deal won't be available to any applications or top-ups that aren't conditionally or fully approved by April 8, or available on rollover of existing conditional or full approvals after this date.

The bank says it'll allow 90 days from the April 8 cut-off date for customers to submit their currently approved Back My Build loans for documentation. 

"This allows the full 90-day approval period for those customers granted a Back My Build approval. While Back My Build is coming to an end, ASB will continue to provide construction lending to those looking to build a new home, lending up to 90% of loan-to-value-ratio for residential new home builds," ASB says.

In terms of its FLP funding, ASB says some $1.3 billion has been loaned to large businesses committed to developing infrastructure and sustainability initiatives. Additionally nearly $200 million has been loaned via rural sustainability lending for farmers making environmental upgrades.