Westpac New Zealand has confirmed it has stepped back from a costly battle for mortgage market share, preferring to sacrifice lending growth and instead keep net interest margins and loan quality strong.ANZ and Commonwealth Bank's ASB have been fighting each other hard for mortgage market share in the last six months, particularly in the largest market of Auckland, where ASB has traditionally had a strong presence. The battle is focused around mortgage brokers. NAB's BNZ and the state-owned Kiwibank have been somewhat sidelined because they do not deal with brokers. The surge in competitive activity along with a rise in house prices prompted the Reserve Bank to warn last week about house price inflation and accelerating mortgage debt.Brokers have reported in recent months that Westpac has stepped back from competing hard for 90 per cent-plus loan-to-value ratio deals, leaving ANZ and ASB to fight it out. Competition accelerated in September, after ANZ announced it would drop its National brand and merge ANZ customers and products into National's computer system.Westpac's New Zealand chief executive, Peter Clare, told analysts in a presentation released through the Australian Securities Exchange that Westpac's mortgage-lending growth was lower than the rest of the market in the first quarter of the 2013 financial year.Clare pointed out, however, that Westpac was growing market share faster than the rest of the market for loans with loan-to-value ratios of less than 80 per cent. He said Westpac was maintaining its discipline on pricing and risk in a competitive environment. Westpac's mortgage loans rose one per cent "in a competitive market where peers offered heavy discounts and cash incentives to drive volume."ASB has been giving away tablet computers with mortgages, and ANZ has been offering thousands of dollars of "cashback" on loans.Clare pointed to the growth in Westpac's net interest margin of five basis points in the second half of 2012, and to a 15 basis point fall in provisions for mortgage lending. Westpac's decision to take the high road in the latest bout of mortgage competition echoes its decisions, in 2004 and 2006, not to engage in the mortgage war sparked by BNZ's "Unbeatable" series of mortgage discounts. Westpac was later criticised for losing market share.