Mortgage wars: Banks offering incentives as market cools

Desperate banks are offering a range of deals to attract customers, as a perfect storm hits the housing and lending market.

BNZ and KiwiBank are both offering 1% cashback for customers (with conditions) – in some cases that could mean up to $20,000 – when they take out home loans.

ANZ has launched a special 1% interest rate for current borrowers who want to make their homes energy efficient. That could mean installing solar panels, heating and insulation or double glazing. The loan, of up to $80,000 could also be used to purchase electric or hybrid vehicles.

It comes as falling house prices, tough lending conditions, buyer hesitancy, and rising interest rates have potential borrowers nervous, all leading to a drop in mortgage applications.

ANZ's Ben Kelleher says customers have been asking for incentives like the energy efficiency loan.

“The market has slowed down, you're seeing it in house sales as well, the fear of missing out has gone and the fear of overpaying has come in, it’ll be interesting to see what happens in the summer months,” he told 1News.

Economist Hannah Ouellet from Sense Partners says the fact the housing market has cooled considerably, means it’s also a buyer’s market when it comes to competition at the banks. “Banks are competing for customers too”.

READ MORE: Major banks cut two-year mortgage rate

However, she thinks many of the deals on offer are targeting those on higher incomes, with higher deposits.

“Reading between the lines of the terms and conditions, it’s clearer that the larger the loan, the larger the cash back.”

And it’s not just banks trying to sweeten the deal. Signature Homes are offering fixed price construction costs on their new builds – at a time when problems finding building materials and labour shortages are resulting in cost blowouts.

Signature Homes’ Gavin Hunt says it’s very difficult for people to get funding from the banks if they don’t know what the final cost is. And “customers are hearing the material shortages and supply chain difficulties and that makes people nervous”.

Ouellet says as always, potential borrowers should look around.

“What buyers should look out for is the trade off between the interest rate they are offered and the deal itself because there are other challenger banks that are offering lower interest rates but don't have those cashback offers.”

The Reserve Bank’s next Official Cash Rate decision is on Wednesday. It’s widely expected to increase the rate again by 25 or 50 basis points, from the current 2%.

While some banks have already taken that into account with their interest rates, with the housing market in a state of flux, expect competition and volatility to continue.