22 September 2015| Clancy Yeates| Sydney Morning Herald
Some smaller lenders have slashed advertised interest rates on new owner-occupier mortgages by twice as much as the Reserve Bank of Australia.
The central bank cut official interest rates by 0.5 percentage points to two per cent over the past year to stimulate the economy. Several lenders have cut their most competitive advertised home loan interest rates for new borrowers by significantly more than this, figures from interest rate comparison website Mozo show.
The cuts have been prompted by fierce competition in mortgages, the biggest source of credit growth for banks.
The most competitive rate offered by small lenders Credit Union SA and Community First Credit Union-owned Easy Street had fallen by more than 1 percentage point in the last year, with both offering loans at 3.99 per cent, while online bank ING Direct was also offering rates of 3.99 per cent, Mozo said.
The best home loan rate offered by National Australia Bank had also fallen 0.93 percentage points to 4.15 per cent in the past year, while Westpac’s rate had fallen 0.89 percentage points to 5.08 per cent, Mozo said.
“Margins are healthy right now, funding costs are fairly moderate, and the smaller lenders are taking advantage of the traditional spring property market to try to ramp up their loan books,” Mozo director Kirsty Lamont said.
Mozo’s figures are based on the best rates available to an owner-occupier taking out a new loan who has a 20 per cent deposit and is borrowing $300,000 over 25 years.
Rate cuts of this size have not necessarily been passed on to existing borrowers as banks’ specials are typically available to customers taking out a new loan or refinancing.
Ms Lamont also said there was a widening gap between the most competitive deals in the market and the average rates offered by the major banks.
Mozo data shows the average home loan interest rate offered by the big four bank is 4.86 per cent, which is 1.02 percentage points higher than the cheapest rate in the market, from iMortgage, owned by non-bank lender Homeloans.
Banks are targeting owner-occupiers because the Australian Prudential Regulation Authority wants lenders to slow their growth in the housing investor loan market to less than 10 per cent from the present 10.8 per cent.
In another sign of the competition for owner-occupiers, NAB last week said it would offer new borrowers in this segment enough frequent flyer points for two return flights to London.
The focus on owner-occupiers comes after most major lenders have raised interest rates for housing investors by 0.27 percentage points, opening up a two-tier interest rate market where investors pay more for debt.
Since these hikes were announced in July, thousands of customers had contacted their banks to update records so their loan was classified as an owner-occupied loan.
Reserve Bank governor Glenn Stevens on Friday said this trend would continue.
“I predict we will now see a number of people who used to call themselves investors are going to call themselves owner-occupiers because the relative pricing has changed. That will lead to some interesting dynamics, I suspect, over the next year,” Mr Stevens said.