‘Disingenuous’: Former bank exec questions back book repricing

From The Adviser.

A former major bank executive says lifting rates for existing interest-only borrowers has little to do with the regulatory pressures the banks claim they are under.

Following a hefty round of rate hikes for interest-only borrowers last month, former Barclays CEO of mortgages Steve Weston says it was surprising to see the banks’ tactics.

“On the one hand, they talk about wanting to rebuild trust with consumers and do all the right things and they’ve got the ABA engaged with a number of well-intended initiatives to ‘make banking better’,” Mr Weston said, responding to a question at the Vow Financial commercial conference in Hobart on Friday. “But then they do things that appear anything but customer-friendly.

“During June, the four major banks announced reductions in their principle and interest owner-occupier rates of between 0.03 per cent and 0.09 per cent, along with increases in their interest-only rates of between 0.30 per cent and 0.35 per cent.”

Mr Weston explained that the media statements from the banks all claimed they had to reprice their interest-only mortgages to meet APRA’s requirement to limit the flow of new interest-only lending to 30 per cent of new residential mortgage lending.

“The key word there is ‘new’. The equation to measure that 30 per cent is all the loans that settle that month – no more than 30 per cent can be IO. The back book doesn’t come into the measure at all,” he said.

“And I wonder how much consideration was given to the impact the rate changes will have on customers. Encouraging existing borrowers to make principle repayments is broadly sensible, although for some, like investment loan borrowers who also have an owner-occupier loan, this may prove sub-optimal from a tax planning perspective.”

Weston further commented that each of the media releases also stated that the rate changes were not related to the bank levy.

“Typically when you see out-of-cycle rate increases, they are justified by an increase in funding costs or the need to hold more capital. But not this time. This time the banks have been clever in using an APRA cap on new lending and using it to justify increasing rates for existing customers. What has been really surprising is the lack of mainstream media commentary about the rate increases.

“Making the changes even more surprising was that in the May Budget, the Treasurer instructed the ACCC to monitor changes in mortgage pricing by those banks impacted by the bank levy. The Treasurer even asked the ACCC chairman to let him know if he finds any evidence of the bank levy being passed on in higher mortgage rates. Whether it was co-incidental or not, the additional income that will be generated by these rate changes all but equates to the bank levy. So it will be interesting to watch how this plays out.”

According to Mr Weston, who was general manager of broker platforms at NAB before joining Barclays in 2012, the Australian banks could have achieved the 30 per cent limit by tightening their credit policies and increasing rates on new loans.

“The back book didn’t need to be touched,” he said.

“At the very least, the banks could have waited until the interest-only loan period expired before increasing rates. They could have written to customers and advised them about the benefits of commencing principle repayments and letting them know that their interest rate would increase at the end of their interest-only term if they didn’t commence making principle repayments at that time.

“These don’t feel like the actions of banks who want to build trust with customers. To me it feels more like taking an opportunity to increase profits. Actually, it feels very un-Australian,” Mr Weston said.

Bankwest Tweaks Mortgage Rates

From The Advisor.

In a note to brokers late on Friday, Bankwest announced that for customers with existing interest-only loans, the following changes will take effect in October 2017:

• 0.25 per cent p.a. increase for interest-only investor home loans; and
• 0.35 per cent p.a. increase for interest-only owner-occupier home loans.

Effective Tuesday, 25 July 2017, the following changes will apply to applications for new lending:

• 0.15 per cent p.a. reduction for new principal and interest investor lending on the Complete Variable and Premium Select Home Loans;
• 0.12 per cent p.a. reduction in the standard rate for principal and interest owner-occupier lending on the Premium Select Home Loan to match the existing acquisition special; and
• 0.05 per cent p.a. increase for new interest-only owner-occupier lending on the Complete Variable and Premium Select Home Loans.

Bankwest said that customers with existing interest-only lending will receive correspondence from the lender closer to the effective date, and that construction loans paying interest-only until fully drawn (IOUFD) will not be impacted by this change.

“Bankwest is mindful of its broader obligations as a responsible lender and aims to balance the needs of customers, shareholders and regulators when reviewing products and pricing,” the bank said.

“These changes are being made in line with regulatory guidance and customers can consider moving to our lower principal and interest rates so they pay less interest over the life of their home loan.”

Expect a Flurry of Mortgage Rate CUTS!

The round of mortgage rate repricing which we have been tracking for the past few weeks, with investor loan portfolios being strongly repriced, and owner occupied loans less impacted, has created a significant well of opportunity for banks to selectively offer attractor rates to principal and interest borrowers.

In addition, funding costs are now lower, and the yield curve is less strongly indicating future increases, thanks to changes in the US financial markets and news that the ECB will continue its bond buying programme.

So we expect to see a flurry of selective, targetted offers, aimed at acquiring new business and supporting loan portfolio growth.

ANZ for example is offering a 31 basis point drop for new two-year fixed residential investment loan for customers paying principal and interest (P&I), falling from 4.34 per cent per annum (p.a.) to 4.03 per cent p.a.

First time buyers may also benefit from keen rates, but only in some cases by asking for them.

Remember this will be for new loans. Existing borrowers will still be saddled with higher costs.


Advantedge Hikes IO Rates

Advantedge Financial Services (Advantedge) today announced it will increase the interest rate on all new and existing variable rate interest only home loans by 0.35% p.a., effective Tuesday 8 August 2017.

Advantedge is part of the National Australia Bank Group (NAB) and is Australia’s leading wholesale funder and distributor of white-label home loans.  

Australian Broker.  says from today, the interest rate on all new fixed rate interest only home loans will increase by 0.35% p.a.

These changes apply to both owner occupier and residential investor home loans, across all of Advantedge’s white label partners.

Brett Halliwell, general manager of Advantedge, said these changes will ensure Advantedge complies with regulatory requirements, including managing interest only lending for residential mortgages.

“Our products are highly competitive and delivered with exceptional service,” Halliwell said.

“Advantedge is focused on ensuring a positive customer and broker experience, and we continue to offer highly competitive variable rate special offers for new principal and interest lending.”

Currently, Advantedge is offering a special 3.74% p.a. principal and interest variable rate for new owner occupier borrowers, and 4.24% p.a. for new principal and interest investor borrowers. Eligibility criteria apply.

“We encourage all brokers to discuss with customers whether a principal and interest home loan may be more suitable for them,” Halliwell said.

Virgin Money unveils multiple rate changes

From Australian Broker.

Virgin Money has announced a raft of interest rate changes on its fixed and variable rate mortgage products.

Effective from today (7 July), Special Offer 2 year fixed and 3 year fixed rates will be available for new principal and interest, owner occupied and investment loans of more than $300,000 with LVRs of less than or equal to 90%.

For all Special Offer fixed rate loans, the interest rates are as follows:

Virgin Money will also be increasing its variable and fixed rates for new owner occupied loans for LVRs of over 90%. This change will also come into effect today (7 July) and will not affect applications with completed supported documents received prior to today.

Finally, Virgin Money will also be increasing its standard variable rates for owner occupied and investment interest online loans by 25 basis points, effective from 8 August.

The Virgin Money Interest Only Rate (Owner Occupied) will change to 4.89% p.a. while the Virgin Money Variable Investment Interest Only Rate (Investment) will become 5.19% p.a.

For new interest only customers, Virgin Money will be changing its rates as follows:

Auswide Bank Lift Some Mortgage Rates By 25 basis points

From Australian Broker.

Following a raft of changes announced by other lenders in recent weeks, Auswide Bank announced today an increase to reference rates for investment home loans and lines of credit.

Managing director Martin Barrett said the bank’s increase of 25 basis points from 11 July 2017 will result in a new standard variable rate (SVR) of 6.10%.

He said Auswide Bank continues to experience funding pressures and regulatory limits on investment and interest only lending.

“We’d prefer not to be increasing rates, but have limited options in the current environment which is the most challenging we have seen in sometime.”

Barrett said many investment loan customers pay discounted rates less than the standard variable rate based on the size of their loan.

ING Direct Joins The IO Rate Hike Dance

From Australian Broker.

ING Direct has announced is will be making a number of changes to variable rates across its home loan portfolio, effective Friday 7 July.


Reference rates for the following segments will change as follows:

  • For owner-occupier borrowers with ING’s Orange Advantage home loan, the principal and interest rates will decrease by 0.05% p.a.
  • For owner-occupier borrowers (with either an Orange Advantage or Mortgage Simplifier home loan), interest-only rates will increase by 0.20% p.a.
  • For investor borrowers (with either an Orange Advantage or Mortgage Simplifier), interest-only rates will increase by 0.35% p.a.

ING said it will waive any switching fees until the 31 August for existing customers with Interest Only loans wishing to switch to Principal and Interest repayments. With a Principal and Interest loan customers may be eligible for lower interest rates.

Bendigo Bank Hikes Some Mortgage Rates By 0.8%

From Australian Broker.

Bendigo Bank will adjust its mortgage pricing to address competitor movements and respond to regulatory caps on growth, after a decision made at its regular pricing committee meeting. Once again the move highlights that owner occupied principal and interest loans is the new battleground.

Managing director Mike Hirst said the changes reflect the requirement to meet the regulator’s expectations while responding to the ultra-competitive owner occupied mortgage pricing market for new lending.

“When setting interest rates our bank needs to consider many factors and carefully take into account the needs of our stakeholders including customers, shareholders, staff, partners and the broader community,” Hirst said.

“We’ve tried to carefully balance the interests of our mortgage customers, those who earn money through deposits and those who invest in our Bank, all while ensuring our pricing remains market competitive and provides the strategic springboard for accelerated growth.

“There is an intrinsic link between the profits our bank generates and the economic and social sustainability of the hundreds of communities in which we operate.  We value the continued commitment of our customers as we strive to grow our business in an extremely competitive market.

“We believe the changes announced today puts the bank in the best position to achieve this and ensuring we remain well below the 30 percent interest only settlements cap and 10 per cent growth limit for investor loans,” he said.

The following pricing changes will occur, effective Friday 14 July;

  • Variable interest rates will increase by 0.30% for existing owner occupied interest only customers and 0.40% for existing investment interest only customers
  • New business interest only variable rates will increase by 0.40% to 0.80% with fixed interest only rates increasing by 0.10% to 0.40%
  • New Business investment P&I variable rates will decrease by 0.15% with fixed P&I interest rates decreasing by up to 0.30 %

“We will also continue to waive the $625 application fee for all owner occupied purchases and external refinances that take out a Bendigo Connect P&I product,” Hirst said.

“Customers currently paying interest only repayments are encouraged to convert to principal and interest repayments. Where the customer meets the lending criteria, the application and settlement fees will be waived.

“We will continue to assess the market conditions and make any subsequent changes as required to maintain our competitiveness, balance our regulatory restrictions while supporting our customers and their communities,” he said.

ME Bank raises IO rates by 40 basis points

From Australian Broker.

ME today announced several changes across its home loan portfolio.

The Bank will decrease by 10 basis points its principal-and-interest variable home loan offer to new owner-occupier borrowers who are applying for a loan in a member package valued at $150,000 or more and with an LVR at 80% or less.

It will also increase by 40 basis points, all interest-only variable and fixed home loan offers to new borrowers.

Both these changes are effective Saturday 1 July.

ME will also increase by 40 basis points its reference rates on all existing variable interest-only loans. This change will affect existing customers in August.

The bank said the changes were being made to manage regulatory requirements on interest-only lending.

ME CEO Jamie McPhee said “the changes are necessary to ensure the Bank complies with macro-prudential measures introduced by APRA, while encouraging existing interest-only home loan borrowers to switch to principal-and-interest.

“Owner-occupier principle-and-interest home loan rates are at record lows. Now is a great time to pay down the principal on your home loan.

“ME does not apply a fee for switching from interest only to principal-and-interest.”

CBA Ups Interest Only Mortgage Rates

CBA changed their mortgage rates for owner occupied and investor mortgage holders from 7th July. This includes a significant hike for interest only.  They already tightened serviceability requirements a couple of weeks ago.  Principal and Interest Ower Occupied holders get a 3 basis point reduction! All this has, they say, nothing to do with the bank tax.

Commonwealth Bank recognises the importance of ensuring borrowers can sustain a strong path to property ownership and will be reducing our owner-occupier standard variable rate for those repaying principal and interest. From 7 July, customers paying off the home they live in will benefit from a lower standard variable rate of 5.22 per cent per annum, a reduction of three basis points.

Around 80 per cent of owner-occupier customers are repaying principal and interest, and these changes can help these borrowers own their home sooner. A customer with an average mortgage of $350,000 will save $78 a year.

We are supportive of the banking regulator’s moves to manage the level of growth and resiliency in the housing market. To meet our regulatory requirements, variable interest only home loan rates for owner-occupiers and investors will increase by 30 basis points.

Matt Comyn, Group Executive of Retail Banking Services, said: “Paying off your home is important for Australians. For owner occupier customers repaying principal and interest, they can take advantage of the interest rate reduction to pay off their home loan faster. These changes also help us keep the right balance in our home loan portfolio, in line with what our regulators require.”

Customers who currently make interest only payments are encouraged, where they are able, to switch to principal and interest repayments. Switching is easy and attracts no fees. Customers can make the change at no cost online, over the phone, or by speaking with a home lending specialist in branch.

These interest only changes are not in response to the bank levy that was announced as part of the Federal Budget in May.

The new rates will be effective from 7 July 2017.

Variable rates Current New from 7 July 2017  
Standard Owner-Occupied Principal and Interest 5.25% pa 5.22% pa -3bps
Standard Owner-Occupied Interest Only 5.47% pa 5.77% pa +30bps
Standard Investor Principal and Interest 5.80% pa 5.80% pa
Standard Investor Interest Only 5.94% pa 6.24% pa +30bps