HSBC’s super low new interest rate of 3.87 per cent sent shock waves through the banking sector last week, prompting commentators to ask if other major banks would follow.
Spring is a time banks usually bring out their big guns on mortgage rates, reflecting the traditional upswing in the housing market around Labour Weekend—but HSBC’s rate came out of the blue, in a market where interest rates have been stable for some time.
There’s no doubt it’s an aggressive move by HSBC to catch attention. The bank itself has said it’s designed to grow their presence in New Zealand and attract a specific type of customer—the rate is conditional on lending over $500,000 or attached to investments totalling more than $100,000.
So, what can we expect to see over the next few months? Will other banks match HSBC?
At the moment I believe it’s unlikely. Banks have been facing a unique set of challenges over the last 12 months regarding mortgage lending, including:
- Loan to Value Ratio restrictions,
- A slightly cooling housing market, and
- More robust lending criteria restricting how they lend.
Alongside these three challenges latest statistics from QV show smaller markets around New Zealand are catching up to the ‘Auckland Slowdown’, and fewer homes are on the market.
When other banks don’t offer the same type of deal, it can be tempting to chase the rate up in lights. The interest rate you pay is significant, but we always recommend taking a more extended, holistic view of your mortgage when structuring it—play the long game and not a quick one.
Think about your loan structure—how are you going to approach your loan? Will you split into different terms, or consider an offset portion? Also, consider your payment structure—how quickly do you want to pay off your loan? What are your long-term financial goals? Are you identifying your monthly surplus income and using it wisely to pay down debt?
As a mortgage adviser we offer impartial advice, it’s not all about rate, it's about paying less interest over the long term with a clever structure plan. So seek advice if you are planning on getting mortgage free quicker.