Simplicity takes on banks with 2.95% mortgage rate

by Ksenia Stepanova03 Oct 2019

KiwiSaver provider Simplicity is taking on the banks with its new cheap mortgage offering, and has entered the first home loan market with a 2.95% floating rate.

The rate will be offered to applicants who have been in KiwiSaver for at least three years and Simplicity members for at least a year, so long as they meet the criteria of a first-time buyer. They will be selected through a monthly ballot system.

The loans will not have any break or penalty fees, and members can repay the full amount of the mortgage at any time at no extra cost. Simplicity says its non-profit status has allowed it to offer such a low mortgage rate, as it is returning the profits it makes on KiwiSaver and Investment Fund products back to borrowers.

“For a first home buyer with a $600,000 home loan, the interest savings are $6,000 in the first year alone, and could be more than $130,000 over the life of the loan,” Simplicity managing director Sam Stubbs explained.

“Not-for-profit building and friendly societies have been lending to their members for centuries. We’re just doing the same for our KiwiSaver members, 100% online. It’s like going back to the future.”

Stubbs says that by cutting out banks who charge high margins to make substantial profits, New Zealanders will have a better choice of low-cost home loan options.

“[Banks] pay less than 2% for most deposits and then on-lend it to home buyers at interest rates closer to 4%,” Stubbs said. “We don’t think our members need to pay that much for their first home, nor do they need to be fuelling the extraordinary profits the banking sector makes.

“Fundamentally, banks in New Zealand want homeowners to pay the highest interest rate and they want to pay depositors as little as possible to maximise their profits. That’s why they’re making over $14 million a day from ordinary New Zealanders.”

Simplicity is expecting to write at least $50 million in loans in the first six months, though Stubbs acknowledges that this is “unlikely to satisfy all the demand,” hence its use of the ballot system to make the selection process fair for all members. Stubbs says he expects Simplicity to be a significant player in the first-home buyer lending market over time.

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