Westpac Wages War On Mortgage Interest Rates

Have you seen in the media about the ‘war’ on mortgage interest rates that’s going on right now? Major banks across Australia are dropping their rates and Westpac is the latest to get involved by offering discounts of up to 105 basis points for their property investment loans.

This is the second time this month that the nation’s second largest lender has cut their rates and Westpac is following in the footsteps of NAB, CAB and ANZ.

This time, the focus is on first time home buyers and rentvestors – property investors who rent their principal place of residence.

Westpac have introduced the following changes:

  • fixed rates for first time buyers have been reduced by 40 basis points for principal and interest repayments
  • a five year introductory variable rate for first time buyers
  • the abolishment of establishment and monthly fees
  • a five year investment loan of 4.09 per cent (including a discount of 105 basis points)
  • a ‘flexi’ five year loan of 3.79 per cent (including a discount of 80 basis points)

Andy Wright, Head of Portfolio Management for Home Ownership at Westpac, said the changes have been implemented “to help first time buyers at the start of their home ownership journey and a cut in fees means they can put their savings towards purchases for their new home.”

The offers have also been extended to first home buyers who are purchasing their first home with the intention of renting it out, a trend that is increasing significantly.

We’ve seen first home buyers emerge in force after high prices, tougher controls on overseas buyers and tighter lending standards saw the overall demand in the property market decrease.

In the last quarter of 2017, Victoria saw a 12.6 per cent increase in first time home buyers, about 9900 loans. This was a 40 per cent increase compared to 12 months before.

NSW saw a 75 per cent increase in the year-on-year comparison and the last 3 months of 2017 witnessed an 11 per cent increase, equating to 7500 loans.

Although the Reserve Bank of Australia and prudential regulators have concerns about record levels of household debt, major Australian lenders have been aggressive in reducing key fixed and investor interest-only rates.

Australia’s big four banks undershot APRA’s 30 per sent cap on new lending, which is how they are now able to apply additional interest-only cuts. They are also trying to reclaim their market share from smaller lenders, so they can boost their profits. Hence the rates ‘war’ we’re now seeing.

currency wars

The new lending strategy suggests that our major lenders are not anticipating an increase in rates any time soon, despite a lot of economists predicting an increase come the next interest rate change.

The Australian Bureau of Statistics has reported a reduction in fixed rate loans, implying that property buyers are also discrediting the probability of rates increasing.

Graham Turnbull, Senior Finance Strategist at Zinger Finance, says that this could be the end of APRA as we know it, but urges people to not place too much emphasis on only going after the lowest rates.

“When servicing for any home loan, you need to consider your long term goals. Going after the lowest interest rate is not always the best strategy because it doesn’t always equal the best value for your needs. Although a loan may offer the lowest rate, there may be other features lacking. That’s why our team of Finance Strategists look beyond today’s loan and think about how it will affect tomorrow’s.” 


What to know more?

Feel free to contact the team for a free Financial Review.


Are There More APRA Changes To Come?

APRA has hinted at the possibility that they may be ready to remove caps on home loans for investors since the recent improvements to mortgage lending standards and investor loan demands.

Wayne Byres, APRA chairman, has said that the 10 percent restriction on banking lending to property investors was “probably reaching the end of its useful life”.

By rescinding the cap, its possible that the pressure on mortgage rates for investors could diminish. The introduction of the cap forced banks to increase their rates in order to stay within the limit. This could no longer be a requirement. Which means that banks are able to write more investor loans which, in turn, boosts credit.

Byres explains that due to better mortgage lending standards and a lower demand for investor loans, the 10 percent restriction is potentially no longer necessary.

Investor loans have declined to below 5 percent, which is at 50% of the cap. New interest-only lending is now at about 20 percent, which is a third of where it was.

Byres has said that there is still work needed before APRA can formally say they are comfortable but they have seen huge improvements in the way the industry is writing business in the last few years – the standard of quality has improved dramatically.

Before we find out when they plan to remove the cap, APRA will need to hold further conversations with the Council of Financial Regulators.

Though they are looking at relaxing this restriction, other key lending restrictions will still remain in place, such as the 30 percent interest-only limit on new loans issued.

Six months after the 30 percent interest-only limit on new loans was issued prices of homes across major East Coast locations started to fall. Byres has said that they want to see how and where the industry settles before looking at also relaxing this restriction. So we can expect this one to be in place for a while yet.


Why did these APRA changes happen?

In December 2014, APRA was given permission to intervene if an individual bank increased their investor lending by more than 10 percent in a 12 month period.

They, along with the Reserve Bank of Australia, had increasing concerns about the banks’ poor lending standards, as well as many unpredictable factors in the property market.

Banks have been under scrutiny from regulators in recent years. This has resulted in them having to re-assess how they evaluate a customer’s suitability for a loan, which is based on factors such as annual earnings, debts, expenses, and sensitivity to higher interest rates.

APRA have been slammed for being too blunt and for creating additional tax deductions for property investors.

With news that they are now looking to relax some of the restrictions, the future doesn’t look as bleak.

Madhu from Zinger Finance says, “I believe the majority of property owners are going to benefit immensely from the proposed changes. Everyone who owns property right now should be approaching their respective Finance Strategist to qualify themselves so they are able to cash in the minute the floodgates open. In essence, you have got to be in it to win it.”

Do you need to talk to someone about your finances in light of this news? There’s never been a better time for a financial health check!

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