Kiwibank throws a cat among the pigeons with cuts to its floating mortgage rate and other variable borrowing rates in move that could benefit small businesses

Kiwibank throws a cat among the pigeons with cuts to its floating mortgage rate and other variable borrowing rates in move that could benefit small businesses

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.

  Floating Lowest  
as at June 11, 2020 Rate fixed rate  
  % %  
ANZ 4.44 2.65 one year
ASB 4.45 2.69 two years
BNZ 4.55 2.69 two years
Kiwibank 3.40 2.65 one year
Westpac 4.59 2.69 two years
       
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
HSBC 4.49 2.60 one year
ICBC 3.99 2.58 one year
SBS Bank 4.54 2.79 one year
TSB 4.54 2.65* one year

* Available under their "Price Match Promise".

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53 Comments

Interesting. Floating rates have been very high relative to fixed rates for a while now.

Banks don't encourage floating rates when the long term rate trend is down. Is how it seems.

Certainly agree that it has looked like they don't want people floating. Why exactly is the question.

People can jump ship if they are floating. A fixed rate locks borrowers in and would impose a break fee for the borrower to leave. If rates are falling the break fee would also be larger.

I reckon they love people floating at the current rates. it’s effectively a gentleman’s agreement not to lower floating rates and I bet they make a fair amount of profit from them. Kiwibank is not being very gentlemanly (maybe they don’t have many floating customers). If the others have to match there will be big profit decreases.

Maybe not, but Kiwibank has rattled the cage do what will the other providers do about it.
..

Wow

Get the feeling Jurkovich is trying to get in front of the "big reset" rhetoric here to try and own the language. The actual "big reset" is likely to be something entirely different to do with fiat currency.

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.

Surely higher capital demands and lower returns from new business debt extensions will impact Kiwibank's profits and immunity to withstand under performing loan repayments.

Are taxpaying depositors being set up for a possible Kiwibank bail out/bail in scenario down the track?

The higher capital demands have been parked for now, due to the environment we're in. And unlike the Big 4, Kiwibank is on the "standard" capital models which I would argue are high enough for capital adequacy requirements. With that in mind it would take a very negative economic situation to put the bank into a bail out situation. Are we headed for that? We are going into a significant recession yes, but not quite in the territory you're alluding to.

Thanks KB

Hopefully ANZ matches this .... been paying 3.8% flexi rate for a while now.

This is excellent news

21
up

It’s how Kiwibank should be at all times.
A disrupter that keep Aussie banks in check.

That's how Kiwibank used to be. Now the Chinese banks are fulfilling that role.

Hmmmm. - are they trying to cripple the Aussie banks or will RBNZ get there first?

How many banks have disappeared since ECB began in 1999 in the eurozone? Do you think this is linked to ECB policies, on interest rates (flattening yield curve, suppressing profit margins for traditional lenders) & increases in the volume & complexity of bank regulations?Link

Go Kiwibank!

A bit off-topic, but has anyone here tried to open a joint account (or joint TD) with Kiwibank?
After 2 weeks, 6 phone calls and one trip to the nearest branch, I gave up. There was a messup at every single step of the process. Phone calls not happening at the agreed time (usually got the call a day later), conflicting information about how we can prove our identities, clearly untrained staff at the branch... It was a huge waste of time.
Went to ASB with just our passports, had a joint TD set up in 30 minutes.

Feel your pain. Took 5 years (five!) to get them to change my billing address for my credit card. In the end, had to cancel the thing because they still sent a replacement one to my old address. Lucky I knew the people that had moved in.

No direct experience here, but the market share of the big aussie banks relative to kiwibank is suggestive, especially when everyone says that (all else being equal) they'd rather bank kiwi owned...

Kiwibank's customer service is not what it used to be - we tried to open a business banking account with them a few months ago and gave up after a few weeks of trying - as Court Jester says "conflicting information about how we can prove our identities, clearly untrained staff at the branch... it was a huge waste of time."

I did this about 3 years ago. It was a nightmare. They had supposedly set it all up with me over the phone and my wife and i just needed to go in to show ID and sign some forms. It ended up taking 2 more trips to the branch and several phone calls. I have not recommended any of my friends or family move to Kiwibank for that reason.

Looks like we'd have had the exact same experience if I hadn't called it quits after the first trip to the branch.

We had no trouble, though it was a number of years ago. Got given a cheque as a wedding present made out to Mr ... and Mrs ... - the teller wouldn't let us deposit it into either of our individual accounts. We asked if we could set one up, waited about 5 minutes before being taken to an office got it done on the spot without an appointment.

I preferred it to the experience at ANZ where they didn't even have offices, just open desks where anyone queuing up could have heard the 20 questions they asked us to try and sell all their other services that we said at the start that we weren't interested in.

I find with banks it's generally best to do things online, as there seems to be pretty reasonable investment in that....at least for the banks that I've dealt with. Kiwibank, included - opened a couple of TDs with them online and that was dealt with quite efficiently.

we moved all our business accounts there, i have nothing but praise for what they did for us and how it was handled. Moved from ANZ, who were absolute rubbish, until I got a mortgage, then they decided I was worthy, which really pissed me off, so I left.

I had a similar experience with an additional card on credit card. It was sent to a different address as it was what I wanted at the time. When it came time to get a replacement because it had expired, it went to the same address. There was absolutely nowhere where the old address was visible. I wasn't even allowed to update it. (remember this is an additional card on an account, not a joint card. I was personally liable for all of it and the additional card holder was not). It took about 5 phone calls to get the address changed. They also canceled her currently working card early and the card that had been sent to the wrong address. It only took 2 weeks to sort. I had to phone them when we were both at home during normal business hours. It was a complete joke. Not banking with them anymore.

Get out of that hole you are in by buying a shovel (on credit) and digging a deeper hole..... cannot fail!

No, no. Get two shovels! That'll help you do it twice as fast....

When are we going to see a homeloan rate start with 1, something % ?

When unemployment rate hits 2, something %.
Not long, just sit tight.. That sharp corner is coming, hopefully we will stay on the tracks

I'd guess there's a 'one' missing from your post? Either 12% or 21% - could be either!

@bw,
In either scenarios, it will be doom and doomer!

For every one who owns only their own home, take all that is saved and use it to pay off the premium. Get ahead as much as possible, no matter how small.

Nah, help the economy.. That Ford Ranger XLT, Wild Track, or that new Beemer 3 series is looking even more gorgeous... Or if anyone got balls made of steel then take out another mortgage and buy in CHCH.. you can be sorry later.

How does buying something made overseas help the economy?

It doesn't just appear here in a showroom - there's a lot of jobs between it rolling off the assembly line and it ending up on your driveway.

I got a surprise unsolicited email from my ANZ banking manager 2 days ago, offering to reduce two flexi (revolving credit) loans, here's a copy of their email:

We have made some adjustments for you today. Flexible Facility $------ now added 0.60% discount margin – new total actual rate 3.65%p.a.
Your HML ****-**********-**** will been reduced (0.70% discount) to align with your existing floating term home loan at 3.44%p.a.

And here's me thinking my current Floater of 4.05% was something special! I guess 3.55% or less on the way then - not that it will make any difference on Offset, of course :)
But I guess every cents counts to some, wherever they are:
"A discounting war is in full swing in the rental market as landlords try to fill empty properties or keep existing tenants"
"Property investors already struggling with falling rents and rising vacancies face a further cash flow crunch as the number of empty rental homes languishing on the market starts to surge"

https://www.afr.com/property/residential/discounting-war-as-landlords-sl...
https://www.afr.com/property/residential/cash-flow-crunch-for-investors-...

bw, you should make it clear that your links and comment are not about NZ but they relate to a different country

I've got a 1% and 0.75% discount off floating rates with BNZ for two offset mortgages. They can rescind the discounts at any time but so far they've not touched either of them.

I'm hoping they drop their floating rate by 1% following Kiwibank and do nothing to touch my discounts - then I'll actually be paying only 2.45% on one of them! (although I have it 100% offset anyway so...).

Is anyone here with TSB? Experiences good or bad?

We had a mortgage with them until 2015.. They are good!

Very good!

Of course, this won't happen to us!
"In Sydney, a total of 17,289 houses hit the market, up 25.2 per cent from March. An additional 8708 units were put up for sale, lifting the apartment stock on the market by 18.4 per cent"

and then, there's Christchurch.....

"2004 and got the housing development underway but later Pegasus Town defaulted on a $142 million payment and went into receivership. The Pegasus development was then sold to Todd Property for $66m in late 2012. The consortium of New Zealand and international investors that bought the huge Todd Property residential development portfolio has put them on the market."
https://www.stuff.co.nz/business/121779175/commercial-properties-at-pega...

"In Sydney, a total of 17,289 houses hit the market, up 25.2 per cent from March. An additional 8708 units were put up for sale, lifting the apartment stock on the market by 18.4 per cent"

That's a big jump. I was interested in this and notice this comes from AFR. Melbourne is also up 20%+.

Pegasus has never really been reflective of the Christchurch property market. It's always struggled even when things were going well elsewhere.

I’ve had good experiences opening New accounts at Kiwibank In the Sylvia Park shopping Centre

Interesting. As an investor I've always viewed floating interest rates as not really important. Few people will refinance for a better floating rate. I wonder what's in it for Kiwibank to give up $20m of revenue? There must be some angle we aren't seeing.

Kiwibank are our mechant supplier for our shop Eftpos. During the lockdown we did "0" trades through the eftpos machine. I see Kiwibank still charged us a minimum charge for the months the machine wasn't used!
In the past we have had nothing but hassles with Kiwibank and do not recommend them. We haven't changed banks yet due to the drama changing everything over. At times we have been very close. Years ago Kiwibank used to be good to deal with.

Well done KB. Im sure will help many small businesses and hopefully gives the big 4 aussie sharks a shake up. i am sure the younger folk will support an NZ bank over the foriegn ones.

KB accidentally changed my revolving to this lower rate over a month ago. I asked them about it and they reversed it (should have kept my mouth shut!).
Wonder if it has been on the cards that whole time?

Members of the PSA can get a discount of 0.5% for floating home loans with Kiwibank (not overdrafts). That means on 29 June there could be people with floating mortgages on 2.9%... That call to not fix looks to be paying off.