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In a move to expand its market share among low deposit borrowers, state-owned Kiwibank announced it would remove an interest rate premium for borrowers with less than a 20% deposit. (Corrected to make clear Kiwibank always lent to low deposit lenders, but that the interest rate premium for 80% plus LVR (loan to value) lending has been removed for its two year mortgage)(Updated with details on mortgage insurance and QBE)

Effective from Monday morning, the move may bolster Kiwibank’s share of the mortgage lending market, with many now saying the slump in New Zealand’s housing market has bottomed out before the traditional spring buying season. In the last quarter of 2008, Kiwibank grew its mortgage market share by more than any other bank.

Kiwibank cut a condition it had on its two-year home loan rates that an extra 0.2% would be added to the rate if the customer did not have at least 20% of the value of the property provided as security.

Kiwibank’s 6.09% rate for a two year mortgage is currently the second lowest out of the banks, beaten only by TSB’s 5.99% which has a maximum 75% LVR.

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An article by Tina Law in the Press has highlighted that Westpac has been offering home loans at up to 90% of a property’s value. Mortgage brokers have also reported other banks lending more than 80%, Law said.

New Zealand’s banks tightened home loan lending ratios in late 2008 as the global financial crisis worsened a slump in the property market. Many banks dropped their 100% lending offers and moved to 80% being the maximum loan to value ratio.

Here are some cuts from the article. We welcome your thoughts and comments below.

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