Competition amongst the country's mortgage lenders is intensifying, with banks offering freebies, cash back and competitions to lure in more customers, despite wholesale funding costs increasing.
Westpac, the second largest mortgage lender, on Thursday slashed its one-year capped home loan rate by more than 1% to 5.49%. It has also introduced a new two-year capped rate of 5.85%.
But the bank has made longer-term borrowing more expensive, raising its two to five year fixed interest rates by up to 25 basis points, as wholesale funding costs increase.
Westpac general manager of retail Ian Blair said he has not seen the market this competitive in the six years he's been at the bank, and his bank's latest cuts are evidence of that.
He said the one and two year rates give customers certainty and flexibility.
Banks are currently offering all kinds of incentives to borrowers, including paying for legal fees, free TVs and cash back.
ASB's new weekly mortgage competition on Facebook, where the mortgage rate is reduced according to how many 'likes' it gets, attracted more than 1800 followers this week, offering the winner a rate of just 1.15% for two years.
The publisher of the website mortgagerates.co.nz and The Mortgage Mag, Philip Macalister, said the mortgage market is as competitive as it's ever been.
He said the big banks are incredibly aggressive in terms of their pricing and their willingness to do deals and they are throwing lots of extras such as i-pads or televisions, as well as contributing to the likes of legal fees.
Mr Macalister said although short-term mortgage rates aren't expected to begin rising until next year, longer-term fixed-rate mortgages have risen sharply in the last few weeks.
"We've got three year rates getting pretty close to that 6% mark at the moment, we haven't seen that for a long time, in the last 10 years they've averaged around 7.5% and they're moving back to that level."
Mr Macalister said mortgage holders can't necessarily look at what's happened to interest rates in previous housing market cycles given changes being considered by the Reserve Bank.
He said there's talk that the Reserve Bank will use macro-prudential tools instead of interest rate increases to control the housing market and if that happens it could mean that shorter term rates will behave differently in this housing cycle and perhaps they will not go up as high.
Mr Macalister said people need to be aware of that and watch what the Reserve Bank is doing.
