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.
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.”
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