Cash offers and discounted rates have become entrenched in the New Zealand lending market as the banks battle for market share.
Major lenders such as BNZ and Westpac are offering up to $3,000 cash to customers who take out a mortgage.
“It is now so entrenched into the mortgage industry here that I don’t know how the banks will ever get rid of it,” Prosper director, mortgage broker and financial planner Paul Fuller told Mortgage Business.
“If you are not getting cash in some shape or form, someone will point it out to you, whether it is your solicitor or a friend – everybody knows you get cash from the banks with mortgages,” Mr Fuller said.
Cash incentives still apply on loans written through a broker.
In fact, incentives have become so commonplace that they are now a discussion point between brokers and their clients, Mr Fuller said.
“Clients now expect to receive a number of offers from different lenders, meaning advisors need to farm the deals to meet client’s expectations, or the clients will shop the market themselves,” he said.
“This then creates poor draw down rates and a lot of additional costs on lenders and advisors.”
While the incentives create problems for advisers around clawback and churn, lenders have become so concerned over market share that they have resorted to paying their clients not to switch banks.
“Westpac have actually paid existing clients to stay with them,” Mr Fuller said.
“A client looking to refinance their mortgages from Westpac to ASB will be told that if they stay with Westpac they will receive $3,000 and discounted rates,” he said.
The system is creating a money-hungry borrower with no loyalty, said Mr Fuller, who recently refinanced a client’s mortgage with a different lender solely for the cash on offer.
“I have one client who refinanced so he could have more spending money for his trip to Europe,” he said.
“It is actually more beneficial to switch your mortgage than it is to remain with your existing lender.”