Bank announces sub 2 percent mortgage rate for new-build homes

Longer-term fixed interest rates are starting to move up, but for some borrowers the bar on floating interest rates has moved lower.

To support building more homes to boost New Zealand's housing supply, ASB Bank has announced a floating (variable) mortgage interest rate of 1.79 percent for new-builds. It's available to owner-occupiers and investors who are either buying a finished new build home (also called 'turnkey') or building their own home from scratch.  

ASB executive general manager of retail banking Craig Sims said encouraging the supply of new-build homes will help to create a more sustainable housing market.  

"Housing supply is a huge issue for the New Zealand economy…that's why we're keen to give a leg-up to customers who want to join us in being part of the solution," Sims said. 

Unlike a fixed interest rate, the new-build floating rate (currently 1.79 percent) changes according to market conditions. ASB said the rate is linked to the Reserve Bank Funding for Lending Programme, a pool of funds available at the Official Cash Rate for banks to lend. 

The bank said there's confidence these funds will stay low for the foreseeable future.

"If the Reserve Bank did change the discounted FLP rate then that would trigger us to look at the ASB Back My Build variable rate, but our intention is for our customers to enjoy the benefit of the FLP discounted rate," Sims added.   

The ASB 'Back My Build' floating home loan (currently 1.79 percent), is available for new-build homes.
The ASB 'Back My Build' floating home loan (currently 1.79 percent), is available for new-build homes. Photo credit: Getty Images.

Referring to the new-build rate as an "incredible game-changer", Wayne Henry, managing director of Wayne Henry mortgages said as floating rates currently offered by the big banks start from 3.40 percent, borrowers taking it up could potentially save thousands in interest.

"It will certainly allow [borrowers] to repay their home loan faster," Henry said.

For borrowers who prefer the certainty of a fixed interest rate, putting all of the mortgage on a floating rate may not be the best option. Some may choose to split their loan, putting some on a floating rate and some on a fixed rate, an option Henry encourages borrowers to get advice on.

"With a rate this low, you should be able to sensibly structure your loan to take advantage of such an offer...if you've locked all your lending in for a fixed term, you could potentially miss out," Henry added.

Those building a home who support 'going green' could also take advantage of a $2000 cashback offer. New-builds are required to incorporate sustainability features and have a HomeStar rating of at least six, offered by ASB Bank in partnership with the New Zealand Green Building Council.

Available through ASB Bank from Monday, the 'Back My Build' variable home loan rate, currently 1.79 percent, can be taken for up to three years from the date the loan is drawn down. 

Under a floating (variable) rate, customers can make extra payments without penalty, and the interest rate can go up or down. ASB said customers taking the new rate could move to a fixed interest rate at any time.  

The loan is available for new-build homes, including completed builds bought from a builder or a developer within six months of the Code of Compliance certificate being issued.