The mortgage market is becoming a much more complex place, as lenders vary rates and conditions for different classes of borrowers and different types of loans. The borrowers who need to pay particular attention to these changes are investors.
Under pressure from the banking regulator, lenders are taking steps to differentiate their variable rates between interest-only and principal and interest.
In March, the Australian Prudential Regulation Authority told lenders to limit new interest-only lending to 30 per cent of loan approvals. It had previously told lenders to limit the growth of loans to residential property investors.
Among the big banks, ANZ increased its interest-only rates by 30 basis points and cut P&I rates by five bps.
Westpac increased interest-only rates by 34 bps and cut P&I rates by eight bps.
National Australia bank increased interest-only rates by 35 bps and cuts P&I rates by eight bps.
Commonwealth Bank increased interest-only rates by 30 bps and cut P&I rates by three bps.
“All this leads to a complex picture, with premiums applying to investors and different premiums applying to interest-only loans,” comparison site Mozo says in its latest Mozo Banking Roundup
James Boyle, chief executive of Liberty, told the Australian Financial Review: “We’ve experienced more change in residential mortgage products in Australia in terms of pricing, complexity and availability than at any point in the last 10 years.”
For example, after making changes last month, the rate on a NAB Tailored Home Loan is 5.24 per cent for an owner-occupier taking out a P&I loan, 5.77 per cent for an owner-occupier taking out an interest-only loan and 5.9 per cent for an investor taking out an interest-only loan.
For NAB borrowers taking out a P&I investment loan, the rate varies from 5.35 per cent for package loans over $750,000 to 5.65 per cent for package loans up to $250,000.
The big banks are not the only lenders raising interest-only rates. ME Bank announced that it would increase its interest-only rates by 40 bps. It cut P&I rates for owner-occupiers by 10 bps.
Bendigo Bank is increasing variable rates for owner-occupiers with interest-only loans by 30 bps and for investors with interest-only loans by 40 bps.
Citibank added 20 bps to interest-only rates and ING Direct increased them by 15 bps.
Investor rate premiums charged by the big banks are between 55 and 60 basis points but some smaller banks are charging investor rate premiums of as much as 100 basis points.
Interest-only premiums vary widely and are as high as 60 bps.
According to UBS, the spread between the Reserve Bank’s cash rate and bank mortgage rates has doubled since 2007, rising to 350 bps. Since the RBA’s last rate cut, last August, mortgage rates have gone up by an average of 25 bps.
Mozo says some smaller lenders have held their investor and interest-only rates steady. Heritage Bank is offering fixed-rate investment mortgages at rates between 4.19 per cent and 4.29 per cent.
State Custodians, Pacific Mortgage Group, AMO Group and Move are all offering interest-only loans below four per cent.