Bank profits fell last year for the first time in seven years, a sharp move away from their all-time profit high reported in 2015.
While the housing market is hot, banks are facing higher offshore funding costs due to low term deposit demand, lower lending volumes due to RBNZ restrictions, and the usual intense competition in the market.
These three factors reduce their profit margins and increase interest rates.
Anecdotal evidence shows that buyers are looking closer at lower-margin fixed rate loans as they try and get ahead of rate rises. Banks are already moving on longer-term interest rates, with some banks raising rates over the holiday break.
Gone are the days of banks giving away large cash incentives to attract and keep customers. For a time there banks were giving away unsustainable amounts of cash to new borrowers and even existing customers threatening to leave. Banks were left wondering if throwing money at potential and existing customers was actually profitable at all. Whilst there is still some cash incentives for new borrowers, they have been substantially reduced in the last 6 months and could reduce further.
What does this mean if you are looking to buy a home, have a mortgage renewal coming up, or need to re-structure?
Instead of chasing incentives or deals, buyers and homeowners need to focus on what bank has the best products to suit their needs and how they can pay less interest over the long term. So often I see borrowers chasing small basis point discounts but not actually focusing on a plan to be mortgage free quicker.
It might seem attractive to move banks for a minor difference in rates, but don’t get blinded by the deals and refinance gimmicks. Make sure you talk to us to put you on the right course for 2017, and to set a plan tailored for you.