Owning your own home just got 0.85% more affordable



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Sick of being beaten at an auction by a cashed-up investor? Well crack the bubbles because the tables might be turning – ever so slightly – in your favour with the introduction of lower home loan rates for owner occupiers.

Just a few months ago, banks were offering the same rate whether you were an investor or a person who wants to buy and live in your own home.  Not anymore.

Since July, RateCity has seen a major jump in lenders offering higher rates for investors as the banks try to re-balance their books towards owner-occupiers.

RateCity’s banking analyst Peter Arnold says it’s not just the investor rates that are increasing.

“Lenders are offering sharper deals to owner-occupiers. Which means if you’ve been dreaming of owning and living in your own home – this just got slightly easier.

“Almost half of all lenders have introduced two streams of interest rates – with differences as high as 0.85 percentage points.  That might not seem like much right now but 30 years down the track it can translate into thousands of dollars,” Arnold says.

While it might not compensate for the competitiveness in some property markets, it is a step in the right direction for first home buyers and families that just want to own the roof they sleep under.

“For the last 10 years, owner-occupiers and investors have generally had the same deal on rates. Now we’re seeing a major shift in lending, particularly from the major banks,” Arnold says.

Why the change?

The national regulator, Australian Prudential Regulatory Authority (APRA) has been calling on banks to limit the increase in investor loans to 10 per cent.  So what they are doing with these offers, is essentially trying to rebalance their book back towards owner-occupiers.

Finance expert Peter Switzer explains, “the banks don’t really want to hit their investor home loan customers, but they have been instructed by [APRA] at the behest of the Reserve Bank of Australia which has been stressed out by the so-call bubble in Sydney house prices.”

“Investors are seen as risky and are being partly blamed for the enthusiastic bidding at auctions being driven by the tax deductibility of their interest repayments, the very low borrowing rates and the fact that property returns look so much better than term deposit rates,” Switzer says.

So who is offering what?

“Initially, most of the action was from the major banks, who are the main ones with the regulator on their case,” says Arnold.

“That said, increasingly smaller lenders are following suit and overtime I think we’ll see the majority of lenders use this differential pricing.”

Martin North of Digital Finance Analytics told the SMH that the owner-occupier rates being offered to customers were dropping by the week.

“There’s no doubt in my mind that the battle ground now is absolutely owner-occupied loans,” North says.

Biggest Margins as at 30 September 2015

Company

Margin

Std Variable Owner Occ

Std Variable –  Investor

bcu

0.55%

4.63%

5.18%

ING DIRECT

0.85%

3.99%

4.84%

ME Bank

0.51%

4.88%

5.39%

Mortgage HOUSE

0.70%

3.95%

4.65%

MyState

0.75%

3.99%

4.74%

UBank

0.72%

3.99%

4.71%

Have banks done this before?

Yes. During the global financial crisis, banks cracked down on business lending by introducing different prices based on risk.

One of the big factors that determine whether you’re a worthy candidate for a loan, and the price of borrowing, is risk. When the GFC hit, lenders deemed small businesses as being risky and either stopped lending to them or charged a premium.

Now we’re seeing a similar thing in the property market – banks are less inclined to lend to investors because APRA, the regular, has deemed investors too much investor lending as a risk to the system.

Risk-based pricing is something that’s been spoken about in the mortgage industry for about five years and this is essentially an extension of that.

Why are investors seen to be more risky?

Investors are more likely to pull out of the market at any time.  They’re not living in the house so it’s not like they have to pack up and find a new home. 

Investors are often quite highly leveraged as well. Because this is deemed as more risky the banks have to hold more capital for lending and so the banks are charging more interest and also lending less as well.

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