Clancy Yeates| Sydney Morning Herald| January 26 2016
New figures reveal a widening gap between the interest rates that banks offer owner-occupier borrowers with big deposits and what they’re ready to give other types of borrowers in the home loan market.
Last year saw the re-emergence of a two-tier mortgage market in which investors are charged more than people paying off a loan for a house they live in. This had been the norm at many banks until the late 1990s. The trend resurfaced after property investors copped two rounds of interest rate hikes from the major banks in 2015, compared with one interest rate rise for owner-occupiers, as lenders sought to slow rapid growth in housing investment lending.
Now, analysis from RateCity shows that in the past six months banks have become increasingly picky about which types of borrowers receive the sharpest interest rates, reserving the best deals for owner-occupiers with bigger deposits.
What interest rate you are paying is increasingly dependent on the size of your deposit.
The data shows banks have even cut the interest rates offered to owner-occupiers who have a deposit of more than 20 per cent, while charging other types of borrowers more.
RateCity analyst Peter Arnold said the average interest rates being offered to owner-occupiers with a 20 per cent deposit have dipped by 0.07 of a percentage point since June, to 4.35 per cent.
“There’s a lot more variation in the market, with tiered pricing,” Mr Arnold said. “These borrowers are basically paying less than they were back in June.”
In contrast, other types of borrowers are offered higher interest rates than they were six months ago, RateCity found. Its figures cover the rates banks are advertising for new customers, rather than what banks charge their existing borrowers.
For property investors with deposits of less than 20 per cent, the average rate on offer has increased to 4.9 per cent from 4.68 per cent, it says.
This means that property investors, especially those with smaller deposits, are being charged interest rates as much as 0.55 of a percentage point higher than owner-occupiers.
Interest rates offered to owner-occupiers with deposits of less than 20 per cent have also edged up, albeit by only 0.03 of a percentage point, to 4.71 per cent.
The changes have occurred because banks are competing more fiercely for owner-occupiers, as the regulators will not let them expand their loan books more quickly than 10 per cent in the investor market.
At the same time, banks are keen to attract borrowers with big deposits, because these tend to be lower-risk loans.
The changes in bank credit policies, including tighter lending to housing investors, is one reason experts are forecasting softer conditions in the housing market in 2016.
Commonwealth Bank economists last week forecast house price growth between 0 and 2 per cent in Sydney and Melbourne this year, citing the softer lending to investors as one factor behind the slowdown.