TSB Bank says a flood of money from depositors in the past month is letting it buck the trend of rising fixed mortgage rates, and enabled it to lower its two-year rate.
The bank has dropped its benchmark two-year fixed rate by 0.2%, to 5.99%, compared to a market average of about 6.25%.
TSB chief executive Kevin Rimmington says the bank does not have to worry about paying the rising cost of money borrowed from overseas, as it sources all its money domestically.
He says a substantial influx of money recently is outstripping its mortgage lending.
Mr Rimmington hopes the TSB can lift its current 3% slice of the mortgage market with the lower rate.
The director of Massey University's Centre for Banking Studies, David Tripe, says other banks are unlikely to follow the move.
He says TSB's funds are derived from retail deposits rather than the wholesale markets, and even New Zealand's other major locally-funded lender Kiwibank may also would struggle to lower rates to the same level because it is more dependent on funding at the market rate.
Dr Tripe says TSB's lower deposit costs are due in part to interest payments based on minimum monthly balances and paid less frequently than other banks.