Kiwibank has slashed floating interest rates by 1 percent for home and business borrowers.
Floating ('variable') and offset mortgage rates are set to drop from 4.40 percent to 3.40 percent. Its revolving home loan rate will drop from 4.45 to 3.45 percent.
For business borrowers, the floating rate for loans secured against a property will drop to 3.90 percent and for business floating loans, to 5.50 percent. The rate for business revolving credit loans will drop to 6.75 percent and for business overdrafts, to 7.50 percent.
Kiwibank chief executive Steve Jurkovich, said that as a result of the rate drops, over 35,000 customers will save $20 million. Pricing floating and fixed rates closer together will give borrowers more options.
"Many customers choose a mix of variable and fixed loans, and as a result of today’s reset, they could enjoy competitive rates and flexibility in an unprecedented way," he said.
A customer with a $400,000 floating loan would be around $100 per fortnight better off. The lower rates could also help first-home buyers with less than 20 percent deposit.
The bank also said that this wasn't a marketing ploy.
"This is not a hook or a short-term promotion: this is our new variable rate and we'll monitor the market to identify opportunities," spokesperson Kara Tait said.
Squirrel chief executive John Bolton, said that cutting floating rates will give borrowers more options.
"Often [people] prefer a floating rate as they need flexibility or are looking to sell. In this environment of lower rates, a competitive floating rate is attractive," Bolton said.
There was no rationale for keeping floating rates high and fixed rates low. He's pleased to see a lender take the lead.
"The challenge for a bank is that dropping its floating rates reprices its whole loan book in one go which is expensive," Bolton added.
On Thursday, major New Zealand banks were offering floating home loan rates between 4.44 percent and 4.59 percent.
In May, rising competition between major banks saw fixed home loan rates drop below 3 percent for the first time. ANZ slashed its one-year fixed to 2.79 percent, prompting ASB to announce an even lower rate of 2.69 percent fixed for two years. On May 22, Kiwibank announced a one-year fixed rate of 2.65 percent.
Kiwibank's new variable interest rates take effect from June 15 for new customers and from June 29 for existing customers.