Kiwibank is cutting its floating mortgage rate in a major move that will shake up the home loan market.
It has cut 100 basis points from its 4.40% rate to the new level of 3.40%.
At that level, it is a rate that is much more competitive with fixed rates.
If the move motivates the big four Aussie-owned banks to match it, it will lower lending to micro and small and medium sized business clients significantly. These mortgage clients have often put up their house as security under floating rate borrowing, a credit line that often uses revolving credit contracts.
And Kiwibank's move reduces all other business lending benchmarks by the full 1.00% as well. That includes the bank's business variable loans, business revolving credit, and business overdraft.
Businesses under severe cost pressure will look at the new Kiwibank offers seriously now. It is likely that the other major will need to respond similarly, whether that be in their rate card, or in informal client-specific deals. The problem SMEs might have however, is that their financials are recently weakened. That makes the equity in their residence or other property a key factor in how the banks will respond to customers seeking lower floating rates.
Kiwibank says the rate cuts will result in repayment savings of $20 million for more than 35,000 home loan and business banking customers. They say a customer with a $400,000 variable loan would be $100 a fortnight better off.
Thursday’s changes to the variable rate come into effect for existing Kiwibank customers on 29 June and for new customers on 15 June.
Kiwibank customers on variable rates will automatically benefit from the changes. Customers coming off fixed loans and new customers can take advantage of the lower, flexible rates through Kiwibank’s website.
Kiwibank CEO hails 'big reset'
In a LinkedIn post Kiwibank CEO Steve Jurkovich describes the rate cuts as the "big reset" and "one of the boldest moves we’ve ever taken."
"Its a BIG RESET of the lending market in New Zealand, which will make a real difference for our customers," Jurkovich writes.
"Today we’ve reduced the pricing gap between fixed and variable lending rates by 100bps (1%) from our variable lending rates across the board. This is about Kiwibank resetting the lending market to give our customers more flexibility and choice when it comes to structuring their loans. It means money in pockets today or paying off loans faster; it means easing the pressure on homeowners and businesses at a time when so many are facing big challenges," says Jurkovich.
"Now more than ever, banks need to continue to step up and do their bit. As the biggest New Zealand owned bank, Kiwibank is proud to play its part."
Here is an update of how each bank compares.
|as at June 11, 2020||Rate||fixed rate|
|Bank of China||4.35||2.55||one year|
|China Construction Bank||5.00||2.65||one year|
|Cooperative Bank||4.40||2.79||12/18/24 mths|
|Heartland Bank||3.95||2.89||one year|
|SBS Bank||4.54||2.79||one year|
* Available under their "Price Match Promise".