Homeowners aren't effective negotiators with their banks. A review of the official data on how much borrowers are paying reveals the extent of the problem

Are most borrowers intimidated when they try to negotiate with their bank?

It is a widely held assumption that you can win a discount on your mortgage interest rate if you negotiate with your bank.

No doubt many do, and gain the advantage of the savings.

But the evidence is not so flattering to most borrowers.

It seems that banks are far better at negotiating with their customers - in fact, the evidence shows that they are consistently winning higher rates off them.

Banks publish their rate offers in their "Rate Card". interest.co.nz sets out these offers on our mortgage page in a comprehensive listing.

You would think that this would set the upper limit of what you would pay - these are the rates from which you should be able to negotiate a discount.

But in actual fact, banks are successfully negotiating with many customers for them to pay more than the rate card.

At first sight, this may seem an odd outcome. But there may be many reasons why a bank will charge you more than their carded offer.

What is surprising is that these situations clearly outnumber the people who do win a discount through negotiation.

The Reserve Bank publishes data monthly of the "new customer average rate %" for the whole bank industry mortgage book.

Comparing that rate with the banks' own rate cards reveals the extent of banking wins through negotiation.

This table summarises the situation using the latest RBNZ data available:

as at November 2012 Average bank  RBNZ data Actual %   Actual $
  ratecard % % premium   cost NZ$mln
Floating rate 5.729 5.79 0.061   59.585
6 month rate 5.154 5.29 0.136   51.532
1 year rate 5.203 5.29 0.087   27.919
2 year rate 5.373 5.42 0.047   3.638
3 year rate 5.785 5.81 0.025   0.368
4 year rate 6.085 6.16 0.075   0.786
5 year rate 6.342 6.46 0.118   0.037

This is a surprising result.

What it is suggesting is that banks can effectively up-sell you when they get to the end of the negotiation process.

It may also be as a consequence of New Zealand's 'small business' environment. Most small businesses fund their working capital needs with a loan secured over personal real estate. Most of these loans will be recorded as a residential mortgage. And because the bank will know that these are essentially 'business loans', they will risk-price them. It is harder for a sole trader or a small business person to negotiate a better rate if their financial situation is not that flash.

Another reason may well be that New Zealanders are hopeless negotiators. No doubt the value that mortgage brokers bring to their clients is the skill of effective negotiation. But most Kiwis don't use mortgage brokers.

There is huge potential for borrowers here.

There are 1.4 million mortgages in New Zealand, and these are probably on about 1 million properties.

Every 0.1% improvement results in NZ$180 million in borrowers pockets per year. And because this type of negotiation is a zero-sum transaction, bank income will fall by the same amount.

A comprehensive listing of all current mortgage rates are here »

Work out how much you would save using our handy full-feature calculator, here »

Mortgage choices involve making a significant financial decision so it often pays to get professional advice. A Roost mortgage broker can be contacted by following this link »

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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The banksters will always win!
Especialy in NZ, where people are so generous and kind, banksters do 'make a killing', so to speak.
It would be advantageous for us if the Efective Annual Rate was publish next to the nominal interest rate advertised. In some countries one sees both advertised side by side.
Of course, one can deduce the EAR by adding all the additional charges and fees to the amount of interest paid, and calculating the percentage value.

I have a mortgage with kiwibank based on their offset mortgage.
when i tried negotiating the mortgage manager stopped me in my tracks saying that the offset due to its structure us not negotiable.  is this really the case or have i been sold up the creek here?
thanks for the feedback!

Melman - Go back and read the fine print on the documents the bank provisioned you with.
Did the Bank inform you that you at the time of obtaining the mortgage that you were not able to re-negotiate the terms in any way?
Are the terms of your mortgage the same as what you discussed with your bank manager when you were in the arrangement stage?  Your Bank Manager would have taken some notes on your visits to arrange your mortgage when making application. You need to ensure that your discussions with the bank manager when you applied for a mortgage were aligned with the final documents you were provisoined with. Any changes made by the Bank should have been notified to you.
Ensure that all interest charged on your mortgage is accurate. There are some pretty good software tools available and you can purchase them online and easily run through your mortgage account and look for any discrepencies and over-charges. You will be surprised at how many errors are made in calculating interest that banks make. When you find errors (and I'm pretty sure you will) use this as a bargaining tool to re-negotiate with your bank.
The software I use conveniently prints out a letter and dates of interest overcharges and creates monthly balances which reverse any overpayments you have made.  

I have the similar offset with BNZ, and yes, they said the same about my floating portion, which is effectively being offset to 3.4%, so yes i can understand why they are reluctant to go lower. However I did negotiate the fixed portion lower than card rate, albeit probably not as low as a broker would manage.

Cash is the new king.

I've just signed up for a reducing mortgage at 6.24%. A bit higher than for their table loan, but I resent paying nothing but intererst in the first few years, thus not building equity / paying of the principal.
I never thought of negotiating the rate!?

Pouggey - I'm a little confused. A reducing balance mortgage should have a small amount of principal being paid as well, yet you state that you are paying nothing other than interest in the first few years.
Do you have any penalty clauses built into your agreement if you make extra principal repayments? Is there any provision for lump sum principal repayments?
Did the bank explain the mortgage product to you in a clear and concise manner? 

Hi notaneconomist, sorry about the confusion: I resent paying nothing but interest, hence I got out a reducing loan.
I haven't read the contract, but we talked about me wanting to pay off this load a heck of a lot sooner than the 25 year term and I will be making lumpsum payments every month, as business allows.
She didn't explain much: I did my homework and told her what I wanted :)

facts people, facts.
Apples with apples.
Mr Interest.co, are you comparing exactly the same list of reported banks as per RBNZ use in their reported carded average...? I tried getting their list of recorded banks and they couldnt even confirm it themselves from their own stats department!!, or what comprised the 'M3' listing did not infact include all lending banks or restrict it to those relevant in the market - so can you confirm what your listed banks are in your numbers and what the RBNZ's are?
and are you reporting the rate card, are the RBNZ reporting rate cards are what people pay?
Offset mortgages you effectively manipulate the rate yourself by saving/having your main account there, so they may well not discount because of the effective rate you're getting by doing this being far lower.
6.24% sounds like a Westpac rate if you look at the comparison tables, not KB......
facts people

This article confirms to me the real need for any existing or prospective borrower to engage the services of a suitably qualified mortgage broker to deal with the lender.
As a mortgage broking firm we consistently negotiate rate discounts, legal fee contributions and where applicable, consumer products (for example ASB and Sovereigns Samsung Galaxy Tablet)  offered by lenders.

Just to check Graeme, BNZ didn't used to deal with brokers when i signed on my mortgage. Is this still the case?

Graeme, you forgot your contact details - I've never seen an advertisement without them!

David.C: .. A categorical statement - Homeowners aren't effective negotiators
Your article poses so many un-answered questions
Did the Bank Carded Rates you published include any "honeymoon" introductory rates?
Suprised that with 1.6 million residential dwellings in NZ that there are 1.4 million mortgages.
The 1.4 million mortgages can't all be residential leaving only 200,000 mortgage free.
So a lot of them must be "commercial" mortgages.
Is a borrower who splits their mortgage with ½ fixed and ½ floating treated as one or two mortgages?
Is that what you mean by 1.4 million mortgages over 1.0 million properties?
Next Question
Are business "commercial" borrowers more or less promiscuous than private borrowers who change partners frequently in pursuit of honeymoon (introductory) rates?
Are Banks extending the honeymoon rates as the shorter periods expire? or,
Are they playing hard-ball.
During the re-finance review, are the banks self-adjusting their internal LVR assessments? and if a client falls outside the revised requirements the bank (perhaps) charges a higher than carded rate?