Simplicity enters mortgage lending with 2.95% home loans

Thursday, Oct. 3rd

Simplicity enters mortgage lending with 2.95% first home loans.

Simplicity, NZ’s fastest-growing KiwiSaver plan, today announced it would provide NZ’s lowest cost home loans to Simplicity’s first home buyers.

Simplicity KiwiSaver members buying their first home will be eligible for floating rate first home loans at 2.95% p.a. interest. This is over 1% lower than competitors.

“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,” said Sam Stubbs, Managing Director of Simplicity.

The loans have no break or penalty fees, and members can repay any or all of the mortgage at any time, at no extra cost.

Loans will be for up to 80% of the value of a first home, as long as repayments do not exceed 30% of combined after-tax income.

While all first home loans will be at a floating rate, members will be given at least three months notice if interest rates rise. This gives borrowers time to adjust to the new rates or switch providers.

“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,” said Mr Stubbs.

By lending money instead of placing it on deposit at the banks, Simplicity also expects to achieve higher investment returns for its KiwiSaver and Investment fund members.

All Simplicity funds ranked 1st or 2nd for 12-month returns in the latest Morningstar quarterly survey to the end of June, and it recently won the 2019 Canstar “Most satisfied KiwiSaver customers” award.

Simplicity has entered the home loan market in response to the number of its members using KiwiSaver to buy their first homes. “Our purpose is to give New Zealander’s dignity and choice via lower-cost financial products. Providing the lowest rate mortgage is an important way to do this. By cutting out the banks, who charge a high margin to make a profit, both our first home buyers and our investing members benefit,” said Mr Stubbs.

“Bank’s provide most home loans in New Zealand and are driven to make profits by charging a margin. They pay less than 2% for most deposits and then on-lend it to home buyers at interest rates closer to 4%. We don’t think our members need to pay that much for their first home, nor do they need to be fueling the extraordinary profits the banking sector makes,” said Mr Stubbs.

“Fundamentally, banks in New Zealand want homeowners to pay the highest interest rate,” said Mr Stubbs. “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,” he said.

To be eligible for a Simplicity first home loan, applicants will need to have been a Simplicity KiwiSaver member for at least one year and meet the criteria of a first-time homebuyer. First home loans will be offered via a ballot system run monthly.

Simplicity members can register for the first ballot on November 1st, which will be drawn in early December. Successful members will then have 6 months to find their first home.

“We expect to make at least $50m of loans in the first six months. This is unlikely to satisfy all the demand, hence the ballot to make it fair for all our members. The more we grow, the more we can lend. We expect to be a significant lender to 1st home buyers over time,” said Mr Stubbs.

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