Kiwibank's home loan plan

One comparison is that non-bank lender Wizard Home Loans, which started in New Zealand two years ago is consistently writing between $30 million and $40 million a month in new mortgages. Wizard will open its 12^th office in New Zealand later this month while Kiwibank has 255 branches.

Of course, not all those branches were open for the full six months. At the end of April it had about 100 branches and about double that by the end of June.

Kiwibank’s business growth is accelerating. After just seven weeks in operation at the end of March it had just $7 million in home loans on its book. By the end of June that had expanded to $43 million and it will clearly better that by a good margin in the current quarter.

Paul Brock, Kiwibank’s head of marketing and acting chief executive, says the $100 million figure puts the bank on target with is business plan.

Brock says Kiwibank only began advertising its mortgages on television in August. Up until then it had wanted to assess the degree of demand and ensure it was geared up to cope with future growth, he says.

It takes time to establish a new brand. While between 500,000 and 700,000 people visit Post Shops, to which the Kiwibank branches are attached, it takes time for those people to become aware Kiwibank is offering mortgages, he says.

There’s also a lag of up to about six weeks between a home loan being approved and it actually being drawn down, he says. Then again, a lot of would-be customers currently on fixed-rate mortgages will wait until their fixed period is about to expire before applying to Kiwibank, he says.

While there are more than 60 lenders in the New Zealand mortgage market, the five major banks still have about 95% of the market, even thought their mortgage rates are about the highest in the market.

Kiwibank certainly has the sharpest rates. Its floating rate is currently 6.95% compared to between 7.8% and 7.85% for the five majors – Wizard’s floating rate is currently 7.45%.

Brock says people chose a banking provider for a whole host of reasons, including the range of other services on offer, not just whether they offer a low mortgage rate. It’s because Kiwibank is attempting to compete with the five majors on all aspects of banking, not just on mortgages, that its recent guarantee that it will provide the cheapest home loans compares itself only with the five majors, he says.

"We think it needs to be apples with apples. We’re offering an overall service. It’s not just about mortgages. It’s about all the other services that go with it."

The guarantee is no desperate measure but part of Kiwibank’s marketing strategy. Now that it knows it can cope with the existing demand "we’re able to turn the volume up. An issue some people had (with Kiwibank’s low mortgage rates), was is this some sort of opening flash-in-the-pan deal," Brock says. It sends the message the bank’s low rates are here to stay.

Kiwibank is able to offer such low interest rates because of its low cost structure, he says. Its "AA-" credit rating allows it to tap the wholesale financial markets at competitive rates and it has already raised $20 million there, but most of its funding currently is coming from retail deposits.

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