Interest rate gap between investors and owner-occupiers to widen
Clancy Yeates Sydney Morning Herald 4 August 2015
Property investors should get used to paying increasingly higher interest rates compared to people paying off a loan on a house they live in, mortgage brokers and experts say.
In the last two weeks, all four big banks have targeted property investors with interest rate rises of between 0.27 and 0.29 percentage points, moves they have blamed on rules that restrict growth in lending to landlords.
It comes on top of moves in May to scrap or cut lucrative interest rate discounts for investors taking out new loans.
Taken together, these two trends have opened up a two-tier mortgage market, something that was the norm at some banks until the late 1990s.
Depending on the bank, many investor borrowers are paying interest rates that are anywhere between 0.27 and 0.6 percentage points higher than those charged to owner-occupiers.
Mortgage brokers predict this gap may widen in months to come, as banks respond to the Australian Prudential Regulation Authority’s demand that housing investor loan growth slow to less than 10 per cent a year.
Managing director of mortgage broker Homeloanexperts.com.au Otto Dargan said he expected further increases in banks’ interest rates for property investors.
This is because banks are trying to avoid being the cheapest lender for investor loans, which would risk leading to an influx of customers.
“The interest rates for most investor loans are likely to be 0.4 percentage points to 0.9 percentage higher than rates for owner occupied loans by the end of this year,” Mr Dargan said.
The recent rate rises also come as some investors question the outlook for profit growth, with listed investment company Argo Investments saying it would be hard for bank share prices to rise much over the next 12 to 18 months.
During the three months to June, Commonwealth Bank, ANZ and NAB all expanded in housing investor lending at a quicker annualised pace than APRA’s 10 per cent a year limit, Goldman Sachs analysts said on Monday.
Principal of consultancy Digital Finance Analytics Martin North said the banks’ strong growth in lending to investors would prompt them to further “throttle back” their interest rate discounts for property investors this year.
At the same time, he pointed to a global debate among regulators about whether investor property loans are riskier for banks, and should therefore attract tougher capital buffers.
“My expectation would be you could see a 70 to 80 basis point gap between owner-occupier and investor as we move forward into the next year,” he said.
With banks’ growth in the investor market restricted, there is also likely to be growing competition for owner-occupier customers.
This is already evident, with the major banks slicing fixed interest rates for these borrowers.
The managing director of wholesale mortgage broker AFG, Brett McKeon, said banks looking for growth may target owner-occupiers more aggressively, with some banks potentially offering discounts of 10 to 15 basis points for these customers.
“You might see 10 to 15 basis points for some customers but I would not think they could go much further than that,” he said.
A spokeswoman for Mortgage Choice said the broker did not expect a further widening in the gap between what investors and owner-occupiers pay, but there was likely to be further tightening of banks’ credit policies.
“Many of Australia’s lenders have made some sweeping adjustments to their lending policy in recent weeks and we expect to see more changes moving forward,” she said.
ANZ, the first bank to raise its investor rates last month, charged owner-occupiers lower interest rates than investors until 1998.