Photo: RNZ
Banks are steadily lowering the interest rates they charge for home loans - but there is a warning that anyone hanging out for a "mortgage war" could be disappointed, at least for now.
From a peak of about 7.3 percent for a special one-year rate, banks are now offering one-year rates below 5.6 percent.
That was a response simply to lower funding costs, Opes Partners economist Ed McKnight said.
"It's costing the banks less to borrow from other people and lend out mortgages. So they are passing these cost savings on.
"If there was a mortgage war you would expect to see falling bank profitability. In other words, banks would be accepting a lower margin in order to gain market share. But, they are not doing this. According to the latest Reserve Bank data the banks are preserving their margins.
"Even as interest rates fell from January to September last year, ASB, ANZ, BNZ and Westpac maintained their net interest margin… ASB and Westpac grew their margins ever so slightly. In fact, all major banks have grown their net interest margin since a few years ago."
With four banks holding more than 85 percent of the market there was not huge competitive pressure, he said.
"What would it take to have a mortgage war? Often a new player in the market. They are the type of people who don't have an established position. So they need to build their market share and can do that with price competition.
"If a bank has more money to lend than customers who want that money, then they could drop their margins and compete on price to bring more borrowers in."
Another thing that could prompt a war was a directive from a board that a bank needed to grow market share.
The NZ Banking Association did not have anyone available for comment on Friday.
A rate war could break out at any time, CoreLogic chief economist Kelvin Davidson said.
"I'm not sure the chances of it happening in the near term are as high as some other points over the past couple of years - after all, general market activity is rising, so the scrap for market share for new lending doesn't perhaps need to be as intense as when there are low levels of sales.
"One thing to watch though will be the activity relating to people rolling off existing floating rates and short fixes in the next three to six months; if the banks are scrapping to keep those borrowers, then you could imagine some reasonable deals being on offer."
Claire Matthews, a banking expert at Massey University, agreed that if the volume of lending the banks were doing was meeting their needs and they felt they had a proportionate share of the market, they would not fight for more.
"It may also depend on the margins available - if there is an opportunity to lock in better margins, they may be more aggressive in seeking a higher share of the lending, whereas if margins are lower they may be reluctant to take on more than necessary at those lower rates."
In March 2018, all of the big four banks had a net interest margin - the difference between what they pay for funding and what they charge borrowers - of 2.1 percent to 2.3 percent.
That rose to as high as 2.5 percent in late 2022 and was 2.4 percent to 2.5 in September.
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