ASB Launches 1.79% Interest Rate For Newly Built Homes: What You Need To Know

ASB lower interest rate:

• What you need to know
• What's the catch?
• Should you get this home loan?

For Kiwis who are building their homes from scratch or those buying a new house and lot package, you can now apply for ASB’s mortgage with a variable interest rate of 1.79% through its Back my Build! This low-interest home loan is made possible through the cheap funding-for-lending programme by the Reserve Bank.

Compared to other leading banks which offer one-year fixed terms at an average rate of 2.25%, this is the lowest that you can take advantage of anywhere in NZ. Although, Heartland Bank has announced a fixed rate of 1.85% and a variable rate of 1.95%. 

At first glance, this seems like a steal if you want to start anew on your own property. But, is there a catch you must know as a consumer? Should you get this mortgage deal?

It’s a flexible plan that lets you switch anytime

One of the biggest concerns for many Kiwis is not getting out of a floating interest rate when the underlying interest index increases. You may be paying a mortgage deal with high interest because your plan doesn’t let you switch to other payment terms with lower interest.

Fortunately, this isn’t the case with ASB’s Back my Build programme. You can pay their loans through lump-sum or switch to a fixed rate anytime. The low floating interest rate is valid for three years, starting from your first drawdown.

ASB Executive General Manager of Retail Banking Craig Sims hopes this would revitalise the housing market in the country and solve the shortage of supply that’s been going on for years. “We've deliberately chosen to make the offer available to both owner-occupiers and investors in recognition of the role investors can play in making new, high-quality homes available for Kiwi families,” he said.

It benefits sustainable housing projects

On top of offering low-interest mortgages, ASB is also offering a $2,000 cashback for homes built sustainably! You should build a house meeting the six-star Homestar rate or even higher by the New Zealand Green Building Council.

“A more sustainable housing market is about increasing housing supply, but it is also about creating more energy-efficient healthy homes,” Sims said. This should increase the lending to construction ratio, which hasn’t risen since 2017.

Sense Partners Economist Rose Collins says, “This is a small step, but any policy to support new builds is good. We desperately need to build more homes to solve our entrenched and worsening housing crisis.” These loans can also be a great financial solution for Kiwis looking to build houses but are putting off their build because of high prices.

It overtakes the LVR restrictions

Infometrics Chief Forecaster Gareth Kiernan believes ASB’s move is likely related to the loan-to-value restrictions by the New Zealand government. Newly built homes are exempted from these deposit restrictions.

Kiernan says, “This interest rate might be a way of trying to grow the bank's lending book and expand market share while still meeting regulatory requirements. I certainly haven’t seen anything in wholesale markets to suggest that retail rates should still be heading lower.”

Through this move, more banks may choose to offer more lending options for building new houses. They may also follow ASB’s move to expand their market while helping Kiwis in building and owning their first home.

But wait — what’s the catch for consumers?

This low-interest home loan is a great financial tool, and there seems to be no drawbacks as a consumer, as of now. However, more than the low variable interest rate and cashback, local housing councils must ensure that they keep up with the demand. They need to guarantee that there’s little to no bottleneck for funding of new infrastructures.

If the local councils can’t keep up with the housing supply and releases of new land, prices may skyrocket. This may hurt you financially, rather than helping you build your new home. Collins stressed that access to these funds is crucial, as made evident after the quakes in Canterbury.

Should you take advantage of this low-interest mortgage?

Why not! If you want to buy a new house but are on a tight budget, it’s the best time to get this low-interest mortgage deal. You may want to make up your mind quickly as ASB’s low floating interest programme is set to run only until 6 June 2022 for the initial allocations. For the additional allocations, it will run until 6 December 2022. 

If you’re still sceptical about this low variable rate, you can always look at other home loan plans from leading banks in New Zealand. They may not be the lowest in the market, but they may be more suitable for your needs and financial situation.

Compare the most competitive home loans from NZ banks using our mortgage calculator, right here at glimp.