ASB is to use cheap funding from the Reserve Bank to offer a cut-price mortgage to home builders.

The 1.79 per cent rate is available to those who build a new home from scratch or buy a home and land package.

The rate is substantially lower than the one-year fixed terms at the other major banks which sit around 2.25 per cent although Heartland Bank last week announced a 1.85 per cent rate fixed for one year and a 1.95 per cent variable rate.

Craig Sims, ASB executive general manager of retail banking, said its ASB Back My Build rate used funds available under the RBNZ's funding for lending programme.

The programme was launched last year with the aim to keep mortgage rates low to help stimulate the economy.

Sims said it hoped the rate would result in ASB doing around a thousand additional new build home loans in the next year.

"Housing supply is a huge issue for the New Zealand economy. That is why we're keen to give a leg-up to customers who want to join us in being part of the solution. 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."

On top of the low rate borrowers will also receive $2000 cashback if they incorporate green design into their build and can show they intend to build a six-star Homestar rated home or higher.

"A more sustainable housing market is about increasing housing supply, but it is also about creating more energy-efficient healthy homes."

Sims said the variable rate would be available for up to three years from when the borrower first draws down.

"The ASB Back My Build variable rate is unique and we're confident that the special market-leading rate coupled with the Homestar reimbursement is going to make a significant difference to first home buyers in particular, while helping to create a more sustainable housing market longer term."