Kiwibank's offer unusual

Kiwibank is taking advantage of a convergence in the funding and housing markets to offer a low five-year mortgage rate, the first time fixing for five years is its lowest rate.

Friday, July 15th 2005, 6:20AM

by Janine Ogier

This week Kiwibank dropped its five-year rate 51 basis points to 6.99% and the phones have been running hot, according to chief executive Sam Knowles.

“It is a mixture of an opportunity to fund at a good rate, as the curve has become more inverted than it has been for a while, and it is a judgement about the market, about where customers are and what some of their fears are as the pressure comes down on house prices,” Knowles says.

“It is a very unusual situation. It is probably the first time that I can ever think of when the five-year rate is actually lower than any other term,” he says.

“This is a unique opportunity for people who are slightly risk averse to secure a five-year rate at what they were paying two years ago for a one-year rate.”

From a marketing perspective, the low five-year rate is part of Kiwibank’s strategy to attract borrowers who want to refinance at no cost – “people with existing mortgages who are prepared to look at a cheaper bank and one that is New Zealand owned”.

The only catch is the mortgage has to be for more than $50,000 for the free refinancing, but it covers all types of home loans, including those for investment properties.

Kiwibank says it can’t get aggressively involved in a rate war, such as the one which broke out in the last quarter of 2004.

“We are a low-cost bank and we don’t have large amounts to spend on advertising so it is very hard to get the message through when your competitors are squawking out there,” Knowles says.

Kiwibank’s share of the mortgage market has been consistently growing, Knowles says, but it is still small, less than 2% of the market.

The bank is getting 5-10% of what is turning over in the market, Knowles says. “Since we launched, apart from that 2 1/2 months (last year) of mortgage madness, we have always had a better rate than the main banks in the market, both for variable and fixed.

Kiwibank suffered from reduced market share after the last battle. This time around when the BNZ started cutting rates, Kiwibank has been one of the more active participants in matching it on a head-to-head basis.

Recently it had been matching or bettering what BNZ was offering in the two- and three-year fixed rate market. The five-year rate deal is likely to be around for weeks, but there’s no guarantee that will stretch into months.