ANZ's decision to axe its National Bank brand has reignited the mortgage interest rate war, as the bank scrambles to retain annoyed customers and its rivals try to poach them.

The bank's competitors quickly responded to Wednesday's announcement by taking out full-page newspaper advertisements and radio and television ads encouraging customers to switch over.

Now state-owned Kiwibank has introduced a special fixed mortgage rate offer of 4.99 per cent for all rates two years and under.

Yesterday's cuts slashed six months and one year terms by 26 basis points, and two year terms by 46 basis points.

But ANZ National quickly trumped two of the rates this morning, offering its own special of 4.95 per cent for six month and one year loans.

The move was an even bigger cut of 65 and 50 basis points respectively.

Kiwibank's offer requires 30 per cent equity in the property and ANZ National's requires 20 per cent.

Both banks are now well ahead of the pack in the short term lending space, with some competition from smaller lenders like HBS and HSBC.

TSB Bank responded to the National de-branding by dropping its two year rate to 5.3 per cent, the closest bank rate to Kiwibank's special 4.99 per cent deal.

It is also offering $1000 towards legal costs, no application fee and a credit card loaded with $500.

The TSB website currently reads: "Dear National Bank customer. Tell your new bank what you think of them by making them your old bank."

Reserve Bank figures show the majority of mortgage lending is still floating rather than fixed, which means most customers can switch without being penalised by break fees.

- © Fairfax NZ News