Photo: RNZ
Home loan borrowers are paying the price as competition heats up with cash back deals, one broker says.
ANZ is offering a 1.5 percent cash back incentive to new loans, up to $30,000, until mid-December.
That is about twice the normal cash back that new home loan borrowers can get.
Squirrel chief executive David Cunningham said many other banks were matching it.
Cash back incentives have become the key way that banks attract new customers in recent years.
These are offered as a percentage of the overall home loan. Previously, they were designed to cover things such as legal fees but are now larger and there no restrictions on how they can be used.
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They have been working to entice new customers in the door - the number of people switching banks has been running at record numbers this year. In July, $2.6 billion of loans changed provider. This fell slightly in August and September, to just under $2b.
But a year ago, it was about half that.
Cunningham said the cost to the banks meant that fixed-term home loan rates were about five or 10 basis points higher than they would be if the cash backs were not offered.
"The battleground used to be fixed term loans and a lot of discounting was going on below the line. But now with brokers doing two-thirds of loans there is a high degree of transparency and existing customers would get those rates when they rolled over as well."
The cash back incentives meant the offers were restricted to new customers, he said. It was less common to see banks offer payments to convince someone to stay but did happen, he said.
Cunningham said new customers would almost always get a better overall deal.
He said ANZ's cash back offer was the highest ever seen in the market by a huge margin.
"Anything above 1 percent is very unusual so that is incredibly aggressive.
"The flip side is that the fixed interest rates will be a bit higher than otherwise for all borrowers. Not really fair, but it's par for the course."
Finance and Mortgage Advisers Association of New Zealand managing director Peter White said people could be stung by a "loyalty tax" if they stayed with one lender.
"Smart borrowers can leverage falling interest rates to help them get a better deal on their loan, provided they have the right plan," he said.
"Existing borrowers shouldn't be penalised for years of loyalty by lenders who reward new customers with sweetheart details never offered to them."
He said people should regularly review their home loan and personal borrowings and contact your current lender to seek a better rate. "And if they don't deliver, see a mortgage adviser."
"Don't just accept what your bank tells you, as mortgage advisers have access to a far wider range of products best suited to your circumstances.
"There is plenty of competition, and while banks can only sell you their products, a mortgage adviser can tailor a product suited to your unique circumstances."
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