Mortgage Merry Go Round - Cash Incentives Explained

One quirk you’ll notice when buying property in New Zealand is how the banks use cash contributions to attract new mortgage customers.

Right now lenders are offering around 0.8% of your mortgage as cash. Sometimes it goes up to 0.9%–1% and, at the moment, some banks are offering as much as 1.5% for a temporary campaign.

It sounds great, but there’s a catch and 80% of mortgage advisors including myself are not loving it!

Because the cash is so generous, everyone with a mortgage is trying to switch banks to grab the offer. The unintended consequence is that banks are completely overwhelmed.

I currently can’t get genuine homebuyers pre-approved in a normal timeframe. It’s a bottleneck. A few months ago the campaign would have made sense. Today it’s causing chaos. I've got clients who signed a Sale and Purchase Agreement 12 days ago, and still waiting for the bank to start assessing the finance.

Another thing to keep in mind is that mortgage rates in NZ tend to be higher than in places like the UK so the cash offered is built into the system. It is not a free lunch!

The cash contributions in NZ also lock you in for three years. If you repay or refinance during that period, you must give the cash back. That creates a merry-go-round where people go to say ANZ for three years, then refinance to ASB for the next three.

It feels strange to keep hopping between banks, but it’s logical to follow the incentives. If a bank won’t pay to keep you, yet pays handsomely to win new customers, staying put means you’re effectively subsidising those who jump.

For most people with a mortgage of $400k or more, following the incentives does make sense.

Normally offers on a property include a 10-working-day finance condition. Right now we’re recommending 20 working days because of the delays. Crazy, but that’s where things are while banks deal with the surge of applications.