Kiwibank lends more than NZ$200 million through its 4.99% one-year home loan 'special' offer

By Gareth Vaughan

Kiwibank will end its "special, limited time" 4.99% one-year home loan offer on Thursday, five weeks after launching it in a less competitive interest rate environment to today.

The bank's spokesman, Bruce Thompson, told interest.co.nz  Kiwibank was set to lend more than NZ$200 million through the special offer with about half of this to new customers.

"Demand is still strong and considerable work is underway processing the applications through to draw down," Thompson said. "We will run it to the end of the month (Thursday)."

The offer is conditional on borrowers having at least 30% equity in their homes.

Kiwibank has been running "special, limited time" mortgage offers, typically for about three weeks, on and off since early 2011. The latest is its longest running and most successful. Generally it lends between NZ$50 million and NZ$100 million through "special"offers.

Launched on April 26, the offer reduced Kiwibank's previous advertised one-year fixed-term interest rate of 5.65% by 66 basis points and easily gave it the lowest advertised one-year mortgage rate by a bank. At that point the next lowest was HSBC's 5.29%, 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. Westpac was next lowest at 5.59%.

Cuts all around

However, since then all banks have cut their fixed-term - but not floating - mortgage rates and most, including Kiwibank, are now advertising standard one-year rates of 5.25%. TSB Bank is slightly lower than the pack at 5.20%.See all advertised bank mortgage rates here.

The global economic outlook has darkened over the past month or so with financial markets spooked by a potential Greek exit from the Eurozone and revelations of mounting problems in Spain, another Eurozone member. There's also growing evidence of a slowdown in the Chinese economy with Glenn Stevens, Governor of the Reserve Bank of Australia, saying yesterday this was something Australia's central bank will keep an eye on.

Here in New Zealand, most economists are picking the Reserve Bank will leave the Official Cash Rate at its record low of 2.5% until at least early 2013. Meanwhile, swap or wholesale rates the banks' themselves borrow at have been falling. As of yesterday, the one-year swap rate was down 35 basis points at 2.38% since April 26 having been even lower, at 2.32% on May 21. Financial markets are pricing in expectations of 33 basis points of cuts in the OCR in the next 12 months.

'Acceptable returns'

Earlier this month Thompson told interest.co.nz the 4.99% "special" was proving Kiwibank's most successful special yet with extra staff assigned to meet demand from both existing and new customers. He said then the offer wasn't a loss leader with Kiwibank making an "acceptable" return on writing one-year home loans at 4.99%. The bank, a subsidiary of State Owned Enterprise New Zealand Post, said in its interim results briefing in February that it was 87% funded through customer deposits.

Banks, including Kiwibank, have also been cutting term deposit rates in recent weeks. Kiwibank is currently offering 4.35% interest on 12-month term deposits with a minimum deposit of NZ$5,000 when interest is paid monthly and 4.40% when interest is paid on maturity. For minimum deposits of at least NZ$10,000, it's offering 4.45% where interest is paid monthly and 4.50% when it's paid on maturity. See all advertised bank term deposit rates for terms of one to five years here.

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