ABC The Business Does Bank Re-Rating

The Business looked at the impact of S&P’s down grades on 23 smaller banks in Australia, and highlighted the impact on funding and competition, especially in the longer term. It will more than offset the bank levy the big banks will have to wear!

They also looked a funding costs and explained why mortgage rates may rise and the potential adverse impact on household debt.

Surge in rate hikes in April as lenders cash in

From Mortgage Professional Australia.

Owner-occupiers targeted as often as investors, data by CANSTAR shows, as banks look to improve margins.

67 owner-occupier variable rates increased in April, data by comparison site CANSTAR demonstrates. Over the same period, 67 variable investment loan rates were increased, going against the idea that investors are being uniquely targeted by banks and regulators.

The average standard variable rate for owner occupiers is 4.50% and the average basic variable stands at 4.25%. Investor rates did increase more steeply in April – by an average of 0.18% compared to 0.08% – and so the standard variable investor loan now has a rate of 4.83%. Both groups only saw very small numbers of rate decreases under 10 in both cases.

The surge in rate increases occurred despite the RBA holding the cash rate steady in April. Nor do many economists expect an imminent rate rise; 81% of Finder’s economists’ panel didn’t expect a rate increase until 2018.

CANTAR group executive Steve Mickenbecker suggested the rate rises had more to do with bank margins than the cash rate. “The big four banks have been required to contribute a greater degree of capital for their home loans than in the past several years,” said Mickenbecker, “capital’s costly, so to maintain their return on equity, they’re in a position where they do have to increase the margin on home loans, and that’s what we’re seeing here.”

Pressure to improve margins was increased by the slowdown of lending, Mickenbecker added, which would slow the growth in bank loan books and hence returns. It’s possible the banks were also making up for very low rates on loans last year, noted Mickenbecker: “there was a lot of discounting going on, with a lot of under-the-table discounting happening, so we were told.” Data for discounting is mainly anecdotal, however.

Mickenbecker doesn’t expect the surge in rate hikes to continue. “The big four have all moved now, over the last couple of months and they’re really the rate setters in the industry,” Mickenbecker told MPA, “I think it would be difficult for them to immediately apply another rate increase: I think they’ll probably have to sit on their hands for another couple of months.”

ANZ Hikes Investor Loans (Again)

From news.com.au.

ONE of the nation’s largest banks ANZ has lifted interest rates on home loan deals.

The bank has followed in the footsteps of rivals the Commonwealth Bank and Westpac, moving interest rates on both owner occupier and investor loans.

Some of the moves also include decreases and are effective immediately.

The moves come ahead of the Reserve Bank of Australia board meeting on Tuesday where it’s expected they will keep the cash rate on hold at 1.5 per cent.

Owner occupiers and investors signing up to interest-only fixed rate deals will be the worst hit with some hikes as high as 0.4 per cent.

On 2, 4, and 5 year fixed owner occupier interest-only loans the rates will rise by 0.4 per cent on the bank’s Breakfree products (this is one of the bank’s most popular products).

On one of the most popular fixed loans terms, three-year owner occupier interest-only loans will rise by 0.3 per cent to 4.49 per cent increasing repayments on a $300,000 30-year loan by $75 per month to $1123.

For investors on a three-year fixed-rate interest-only Breakfree deal the rate will rise 0.3 per cent 4.69 per cent, pushing up repayments by $75 per month to $1173.

For both owner occupiers and investors on principal and interest fixed rate deals rates on nearly all these products will fall.
Borrowers have been hit by fixed rates increases in recent weeks.

Borrowers have been hit by fixed rates increases in recent weeks.Source:Supplied

The three-year fixed rate owner occupier principal and interest deal will fall by 0.2 per cent to 3.99 per cent saving customers $34 per month and making repayments $1431.

On a three-year fixed rate investor principal and interest deal the rate will fall by 0.1 per cent to 4.44 per cent.

An ANZ spokesman said the “reflect our need to closely manage our regulatory obligations, portfolio risk and the competitive environment.”

Mozo spokeswoman Kirsty Lamont said the increases by ANZ are a result of the financial regulator, the Australian Prudential and Regulation Authority limiting their interest-only lending.

Mozo spokeswoman Kirsty Lamont said there’s increasing pressure on financial institutions to limit interest-only lending.Source:News Corp Australia

“It’s now more important than ever for interest only borrowers to do their homework on where to find the best rates in this current climate of tighter regulation,’’ she said.

“With the Federal Reserve jacking up rates in the US and inflation just scraping within the Reserve Bank target, we expect a cash rate increase in the next 12 months which means these fixed rates are unlikely to be around for a long time.”

CBA Lifts Mortgage Rates

From Australian Broker.

Commonwealth Bank is increasing home loan fixed interest rates for investment home loans and interest only customers to ensure we continue to meet all regulatory requirements.

 

Fixed rates for owner occupier customers making principal and interest repayments have not changed.

The following changes will be effective from Friday, 21 April 2017:

  • Fixed rates for owner occupier home loan customers making interest only repayments are increasing by 25 basis points
  • Fixed rates for investment home loan customers making interest only repayments are increasing by 50 basis points for between two to five year terms
  • One year fixed rates for investment home loan customers seeking making interest only repayments are increasing by 25 basis points
  • Two to five year fixed rates for investment home loan customers making principal and interest repayments are increasing by 25 basis points

Home loan customers who already have a fixed rate loan are unaffected by these changes. CBA says it will continue to offer competitive rates across its products, including the equal lowest owner occupier Standard Variable rate among the major banks. Furthermore, home buyers looking to make principal and interest repayments and live in their property will not be affected.

A table of the changes is below:

Fixed Rate Interest Only Owner Occupied Home Loans

Product

Change (p.a)

New rate (p.a)

1 year fixed rate

0.25%

4.64%

2 year fixed rate

0.25%

4.24%

3 year fixed rate

0.25%

4.34%

4 year fixed rate

0.25%

4.64%

5 year fixed rate

0.25%

4.84%

Fixed Rate Principal & Interest Investment Home Loans

Product

Change (p.a)

New rate (p.a)

2 year fixed rate

0.25%

4.44%

3 year fixed rate

0.25%

4.54%

4 year fixed rate

0.25%

4.84%

5 year fixed rate

0.25%

5.04%

Fixed Rate Interest Only Investment Home Loans

Product

Change (p.a)

New rate (p.a)

1 year fixed rate

0.25%

4.84%

2 year fixed rate

0.50%

4.69%

3 year fixed rate

0.50%

4.79%

4 year fixed rate

0.50%

5.09%

5 year fixed rate

0.50%

5.29%

NAB Lifted Mortgage Rates Again

From Australian Broker.

National Australia Bank (NAB) has announced further changes for residential investor and owner-occupier borrowers, effective from last Friday (7 April).

 

The rate for NAB’s 1 Year Package Fixed Rate for Residential Investment Home Loan changed to 4.29% p.a. for principal and interest repayments.

For the 1 Year Package Fixed Rate for Interest Only Residential Investment Home Loan, rates changed to 4.39% p.a.

Finally, fixed rates for all other interest only owner occupier and interest only residential investment loans increased by 0.10% p.a.

“We are operating within a dynamic financial, economic and regulatory environment, and it’s important that we regularly review our pricing and policy measures across all of our home loan products to ensure we continue to lend responsibly,” a spokesperson from NAB told Australian Broker.

“NAB continues to offer competitive home loan rates to customers. The changes made to our fixed rates on Friday 7 April 2017 apply to new loan accounts only.”

 

Majority of brokers expect more out-of-cycle rate hikes

From The Advisor.

A recent survey has revealed that 85 per cent of brokers believe there are more out-of-cycle rate hikes in the pipeline, which will create challenges for existing mortgage holders.Online mortgage marketplace HashChing undertook a survey recently, which found that the majority of brokers see further out-of-cycle rate increases on the horizon.

The survey’s results come after a series of lenders have lifted their home loan rates over the past couple of weeks.

The big four moved first, with Commonwealth Bank the last of the majors to announce changes when it revealed on Friday (24 March) that it would be increasing interest-only investment home loans by 26 basis points.

Other lenders have since followed suit, with a range of non-bank lenders and specialist lenders alike moving to increase rates, particularly for investment lending.

Commenting on the findings of the survey, former CEO of the MFAA and current chief operating officer of HashChing Siobhan Hayden emphasised that brokers believe these rate increases are likely to continue.

She highlighted that for consumers, the impact of this trend continuing is that they will potentially be paying more than they need to.

As these challenges arise for existing mortgage holders, brokers are uniquely positioned to help their clients, Ms Hayden told The Adviser.

“Rather than have customers set and forget their loan, they can engage with brokers to understand their current position, and whether there are better offerings for them in the market,” she explained.

She highlighted the value that brokers can bring to consumers, particularly in such an environment, “Consumers that don’t understand our sector may look at their first priority as being the interest rate. [For example,] when a customer starts talking to a broker on a Tuesday of the week but wants to go to auction on a Saturday, suddenly the turnaround time for pre-approval is far more important than whether you get a 3.7 or 3.8 per cent interest rate.

“There are so many more variables that come into play, and that’s that value that brokers provide.”

Rate hikes will drive borrowers to smaller lenders, brokers say

Of the brokers surveyed by HashChing, 97 per cent believe that the out-of-cycle rate increases will drive borrowers to smaller lenders and non-bank lenders.

“I think there’s a couple of reasons for this,” Ms Hayden said. “In the retail space, consumers will obviously work with lenders that have a bricks and mortar location, which tends to be your majors. So, someone like Suncorp out of Queensland doesn’t have a strong footprint in all the other states, but the brokers provide that distribution for them, same with ING, and the Bank of Melbourne outside of Melbourne, etc.

“So, all the second-tier lenders, all the non-majors are ones where brokers provide a significant benefit in relation to distribution. So, when it comes to brokers assisting their customers, it’s a really good time to understand whether they’re an owner-occupier or investment customer, and then looking at what the current rates are available, and from our survey, brokers are interpreting that the second-tier lenders may be a stronger fit for customers at this current point.”

Further, the survey found that 77 per cent of brokers believe that smaller lenders will continue to offer rates below 4 per cent for owner-occupiers, but almost 93 per cent don’t believe smaller lenders will do the same for investors.

In light of this, Ms Hayden told The Adviser that brokers should be supporting their investor clients by looking at the full market available.

“[They can] better communicate to customers the current cap on investment lending, which is being applied through APRA. It’s a current market condition which is pushing interest rates up in that space, so it’s about engaging customers on that matter,” she elaborated.

Ms Hayden added that the current interest rate environment, along with tighter lending standards from APRA and ASIC, presents an important time for brokers to look at providing their existing customers with detailed communication about current market changes and re-engage with them.

“[Brokers] have a CRM and a full database of customers that they’ve worked with. They often do post-settlement engagement, including newsletters and RBA alerts, interpreting information of the current loans that they have with customers.

“Brokers should target communication to those customers that may be investor or owner occupied, particularly if the rate that they’re currently on are high, and look at what they’re currently doing and how they can better assist them,” she concluded.

ABC The Business Does Mortgage Rate Rises

A segment from The Business last night which discussed the rising mortgage rate environment.

The big four banks and many of their smaller competitors have raised interest rates in step with each other but out of step with the Reserve Bank. Investors will experience the biggest rises, as banks seemingly heed the warning of regulators to cool the heated property market.

They referred the to Trump effect on funding costs, the differential repricing of investment loans, and suggested that more rises are due, irrespective of what the RBA might do.

 

Property prices continue to soar in an already hot market

From The NewDaily.

Latest property price figures have given home owners reason to celebrate and first home buyers even more reason for despair.

Latest data from CoreLogic Home shows prices in Australia’s main cities have leapt 3.7 per cent since the start of the year, with Sydney and Melbourne predictably higher than the national average.

Residential prices in the already-hot Sydney market jumped 5.3 per cent since January 1, with the median price hitting $950,000, and the median price for units now $740,000.

Melbourne property prices have risen 4.4 per cent this year, with the median house price at $710,000 and the unit price at $525,000.

Perth was the only capital where prices have fallen, down 1.1 per cent.

Meanwhile, Hobart remains the cheapest market with median house prices at $365,000 and unit prices at $306,500.

The news comes a week after former Liberal leader John Hewson declared Australia was experiencing a property bubble and also follows a Reserve Bank statement noting there had been “a build-up of risks associated with the housing market”.

The bank referred to rising property prices in Melbourne and Sydney, the “considerable” number of apartments coming onto the market over the next few years, resurgent growth in investor lending, and household debt rising faster than household income.

CoreLogic also reported that the proportion of settled auctions — a key benchmark of demand — was also up.

The national auction clearance rate jumped to 77.1 per cent in the week to March 26, from 74.1 per cent the previous week and well up from the 70.9 per cent in the same week in 2016.

But home buyers could soon find themselves squeezed from two sides, as interest rates rise for both owner-occupiers and investors.

“There’s only one way for interest rates to go in my reading, and that’s up,” Martin North, analyst with Digital Finance Analytics, told The New Daily.

“I’ve believed for some time that by the end of the year interest rates on owner occupied housing loans will rise by 25 to 50 basis points and for investor housing it will be between 75 to 100 basis points. That is irrespective on any moves the Reserve Bank might make on rates.”

The escalation that has seen mainland capital house prices rise 13.1 per cent in a year and as much as 19.8 per cent in Sydney is putting pressure on buyers despite low rates.

“Around 20 per cent of all owner-occupiers are suffering mortgage stress, and if rates were to rise one percentage point that would rise to 24 per cent, Mr North said.

CoreLogic’s data also showed that there were 3147 auctions last week— the second highest so far in 2017, and up from 2916 the previous week.

 – with AAP

AMP Bank Lifts Mortgage Rates

AMP Bank has announced changes to its mortgage lending rates for both owner occupiers and investors.

Effective 3 April 2017, variable interest rates for interest-only loans for existing customers will increase by 15 basis points for owner-occupied loans and 28 basis points for investment loans.

In addition, effective 31 March 2017 for new customers and 3 April 2017 for existing customers, owner occupied principal and interest variable rate loans will increase by 7 basis points. As a result, the AMP Bank Professional Pack owner occupied variable rate loan will increase to 3.92% p.a. for new customers for loans of $750,000 and above.

AMP Bank is encouraging customers with interest-only loans to switch to principal and interest repayments where appropriate. Until 30 June 2017, AMP Bank will waive the switch fee for customers moving to principal and interest repayments.

Sally Bruce, Group Executive AMP Bank commented: “We are managing our portfolio in a very active market but are committed to providing competitive rates to our customers to help them achieve their property goals.

“We also want to encourage customers to move to principal and interest repayments where it’s appropriate, as there is a great opportunity to access lower interest rates and repay your loan faster.

“Our decisions on rates are not taken lightly and reflect wholesale funding costs, the need to maintain a balanced portfolio and the market environment,” she said.

St George Lifts Mortgage Rates

St George has followed the other majors with lifts in variable mortgage rates, and those with investment loans are hit the hardest. They are also offering a “free” switch from interest only to principal and interest repayments until June.

Effective on 8 May 2017, St George will be increasing the following variable rates for:

  • Owner Occupier Interest Only Home Loan variable rates: by 0.08% to 5.50% per annum (comparison rate 5.67% per annum*)
  • Residential Investment Principal & Interest Home Loan variable rates: by 0.23% to 5.78% per annum (comparison rate 5.95% per annum*)
  • Residential Investment Interest Only Home Loan variable rates: by 0.31% to 5.98% per annum (comparison rate 6.15% per annum*)

*Comparison rates are based on a loan of $150,000 over a term of 25 years.