Heartland Group has dropped its floating home loan rate to 2.5 percent, beating its own already lowest-in-the-market 2.95 percent rate, and it's throwing in a $750 sweetener.
The nearest competitor in the floating rate space is niche non-bank lender Resimac with 3.39 percent and the nearest mainstream bank competitor is Kiwibank with a 3.4 percent floating rate.
"We're slightly different to the rest of the market in the sense that this is an exclusively online offer" and that means the cost of providing the mortgages is "demonstrably less for us," said Chris Flood, who is chief executive of the Heartland Bank subsidiary.
"We've invested a lot to digitalise fulfillment and on-boarding and building that into an end-to-end process. That means we just don't have the origination costs that other banks do," Flood said.
"Most of the savings are in that end-to-end origination process."
In addition, the Heartland Group has access to different funding options that aren't available to subsidiary Heartland Bank, Flood said.
"So, we can afford it. We've done the math and it makes good sense to us."
One thing Heartland is looking at is securitisation – bundling a large number of mortgages into a bond-type product that is then on-sold to outside investors – although that's something the company will decide on later, Flood said.
Vanilla only
For all these reasons, the Heartland offer applies to only the most vanilla of housing loans. All applicants must have a stand-alone house on a single section to be either purchased or refinanced with a Heartland mortgage, and the owner or buyer must have at least a 20 percent deposit and intend to live in the home.
As soon as any complexity is introduced, the costs go up. "If it's not vanilla, we can't make it work at this rate," Flood said.
The floating rate offer also comes with a $750 credit, subject to a clawback provision if the loan stays with Heartland for less than 12 months.
Lowering the floating rate is Heartland's latest move aimed at re-entering the mainstream mortgage market through an online product. Heartland affirmed its one-, two- and three-year fixed mortgage rates at 1.99 percent, 2.35 percent and 2.45 percent respectively, which are also the lowest rates in the market.
That's not counting Simplicity's 2.25 percent floating rate to its KiwiSaver members, although only a miniscule number of people can get it — one has to go into a monthly draw and only if you've been in KiwiSaver for at least three years, with Simplicity for at least one year and be a first-home buyer, and the list of qualifications goes on.
Heartland relaunched its offer, which is open to all comers who meet its much shorter list of criteria, last month after the original launch in March was stymied by the covid-19 national lockdown which meant $50 million of conditional approvals failed to turn into actual loans.
Flood wouldn't confirm how much interest the relaunched offer has garnered, but said it was considerably more than $50 million.
"We've had a much stronger response this time around."
