Kiwibank says it's being swamped with demand for its 4.99% 1-year home-loan special, which it's making an 'acceptable return' on

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By Gareth Vaughan

Kiwibank says its current "special, limited time" home loan offer is proving its most successful yet with extra staff assigned to meet demand from both existing and new customers seeking to lock in the state owned bank's 4.99% one-year rate.

Spokesman Bruce Thompson told interest.co.nz the bank expects to lend up to NZ$100 million through the special offer, which has been running for a week. Furthermore he said the offer wasn't a loss leader and the New Zealand Post subsidiary was making an "acceptable" return on writing one-year home loans at 4.99%.

Thompson said an extra five or six staff with lending experience had been drafted in to Kiwibank's call lines to make sure customers, and potential customers, get a quick response. Interest in the offer, available to borrowers with at least 30% equity in their homes, was particularly strong over the weekend, he said.

"This would have to be our most successful 'special'," said Thompson.

Launched on April 26, the offer reduced Kiwibank's previous advertised one-year fixed-term interest rate of 5.65% by 66 basis points. It also gives Kiwibank the lowest advertised one-year rate by a bank. The next lowest is HSBC's 5.29%, which is only available to that bank's premier customers who must have either a minimum of NZ$500,000 in home loans with HSBC, or at least NZ$100,000 of savings and investments with HSBC. And after that is Westpac's 5.59%. See all advertised bank home loan rates here.

Thompson said Kiwibank wasn't "picking up vibes" that other banks were matching its offer, although interest.co.nz has heard from one mortgage broking firm that ASB is prepared to.

'Most successful one yet' likely to lend about NZ$100 million

Kiwibank has been running 'special, limited time" mortgage offers, typically for about three weeks, on and off since early 2011. Thompson said the current one was set to be its most successful yet.

"Initially expectations were for (the offer to run for) around three weeks based on the cost of funding (and secured funding) and volume being balance between new and existing customers," said Thompson. "(But) if the demand remains we may extend an extra week."

"We’d expect anywhere between $50 million and $100 million being lent (including to both existing and new customers) for any of these specials and this one certainly looks like being up at the top of that range. New customers would be around half of that, but note that’s extra to our normal business/volumes."

Asked how the 4.99% rate compared with Kiwibank's current overall cost of funding, Thompson said: "This is a tighter margin than the rest of our card, but not a loss leader. We are making an acceptable return."

In its interim results briefing in February Kiwibank said it was 87% funded through customer deposits. The bank is currently advertising one year term deposit rates of 2%, with interest paid on maturity, for minimum deposits of NZ$1,000, 4.5% for minimum deposits of NZ$5,000 with interest paid at maturity, and 4.6% for minimum deposits of NZ$10,000 with interest paid at maturity. It's offering 4.45% for minimum deposits of NZ$5,000 if interest is paid monthly, and 4.55% for minimum deposits of NZ$10,000 when interest is paid monthly. See all advertised bank term deposit rates here.

'Customers' seeking certainty'

Meanwhile, Thompson said the key drivers of demand for the current "special" offer appeared to be home loan customers' seeking some level of certainty given speculation about where interest rates were headed.

"There does not seem to be a perception that rates will fall and financial commentators in Australia are making reference to a decoupling between the Official Cash Rate and bank rates." Thompson said. "We are getting a 50/50 split between existing Kiwibank and new customers inquiring about the rate."

Kiwibank's last "limited time, special" offer was a 5.39% fixed six month offer that ran during February and March. In January it ran an offer of 5.99% per annum for four years, reducing its standard four-year home rate by 80 basis points and undercutting rivals. During last November and December it offered a six-month fixed term rate of 4.99%, reducing its existing rate by 66 basis points. Customers taking up that offer, which Kiwibank said featured the lowest rate ever offered by the bank, also required 30% equity in their home.

KPMG's recent annual Financial Institutions Performance Survey Review of 2011 noted Kiwibank grew loans by 10.9% to NZ$11.582 billion, which although stronger growth than its rivals, was its lowest percentage growth since the bank's inception in 2002.