Virgin Money Cuts Mortgage Rates For New Customers

From The Adviser.

Virgin Money, the Bank of Queensland-owned lender has this week reduced its variable rates for both owner-occupiers and investors and increased the maximum LVR for interest-only mortgages.

Effective from 1 November, Virgin Money will be decreasing variable owner-occupied principal and interest (P&I) and interest-only (IO) rates (for LVRs equal to or under 80 per cent) and variable IO rates for new applications submitted in ApplyOnline.

Also effective this week, the lender’s maximum LVR on owner-occupied IO loans has increased to 80 per cent. The rate changes are as follows:

Owner-occupied – principal and interest (P&I)

Current rate (p.a.) Change New rate (p.a.)
Borrowings $75,000 to $499,999 3.89% -0.21% 3.68%
Borrowings $500,000 to $749,999 3.84% -0.16% 3.68%
Borrowings $750,000 and above 3.79% -0.15% 3.64%

Investment – Interest-only (IO)

Current rate (p.a.) Change New rate (p.a.)
Borrowings $75,000 to $499,999 4.69% -0.16% 4.53%
Borrowings $500,000 to $749,999 4.64% -0.11% 4.53%
Borrowings $750,000 and above 4.59% -0.06% 4.53%


Teachers Mutual Bank Lops 30 Basis Points Off New Mortgages

From Australian Broker.

Teachers Mutual Bank’s Classic Home Loan variable rate has today been cut by 30 basis points to 3.84% for new business across its three key brands: Teachers Mutual Bank, UniBank, and Firefighters Mutual Bank.

Fixed rates across a number of home loan products have also been cut for all brands. Two year fixed rate home loans will drop to 3.69% p.a. (15 basis points). Four and five year fixed rates home loans will be reduced by 22 basis points to 4.36% p.a. and 4.49% p.a. respectively. These fixed rate changes will effect both new business for owner occupier on principal and interest payments. Interest only loans for owner occupied purposes will also be reduced by the equivalent to 4.38% p.a. (2 Years), 4.76% p.a. (4 years) & 4.89% p.a. (5 Years).

“We always seek to provide some of the most competitive rates on the market, and these new rates achieve that aim”, said Teachers Mutual Bank’s head of third party distribution, Mark Middleton.

“These changes provide customers an opportunity to lock in a very reasonable home loan rate with Teachers Mutual Bank, UniBank or Firefighters Mutual Bank. The incentive to join us increases once you consider these loans are supported by our 100% mortgage offset facility, our high levels of customer service, and our environmental credentials”, said Middleton.

These rate changes follow on from Teachers Mutual Bank Limited’s recently announced annual results, which highlighted the brand’s strong home loan performance, with first and third party lending growing by a total of 19.23% in 2016-2017.

“Our third party channels are a strong area for business growth for us, and our engagement with the broker community will be a continued focus as we grow our portfolio and our brands over the next year. These rate changes are a positive step in building that growth”, said Middleton.

What happened to home loan rates a year on from APRA’s changes

Our friends at Mozo have written a highly relevant blog post for DFA on the impact of the APRA changes.  No wonder, some households are under pressure! And thanks to Mozo for their insights!

There’s been a reasonable amount of ups and downs in home loan interest rates over the last 12 months, especially considering the official cash rate hasn’t changed since August last year. Many of those changes served to draw clear lines between borrower and repayments types, as banks aim to cut back on risky lending after APRA updated regulations earlier in the year. The changes included a 30% cap on new interest-only lending and a mandate for stricter limits on interest-only loans with LVRs above 80%.

And the different interest rate changes between borrowers types have been pretty dramatic. While at one end of the scale, owner-occupiers making principal and interest repayments saw hardly any change, on the other, riskier, end, investors with an interest-only loan – who perhaps saw the biggest changes thanks to APRA’s updated rules – have been hit by the equivalent of more than two typical RBA rate hikes.

Here’s a full breakdown of the movement in different rate types over the 12 months from October 2016 to today.

Owner occupiers making principal and interest repayments – 0.01% increase

People buying their own home and paying off the principal and interest each month have fared the best over the past year, with an increase of just 0.01%, bringing the average rate to just 4.03%.

That’s good news, since according to analysis done by ASIC, the majority of owner occupiers fall into this category. Even better news is that the lowest rate around at the moment for this borrower group is 3.54% – 0.10% higher than it was in October 2016, but still a very competitive offer.

This very minimal rate change over a 12 month period in part reflects the fact that this group is the least risky from a bank’s perspective. Unlike other rate types, there was a pretty even split between the number of lenders who increased rates (30) and those who decreased (33).

Owner occupiers making interest only repayments – 0.25% increase

According to ASIC, one in four owner occupiers have an interest only loan. Unlike loans with principal and interest repayments, in this category there was an undeniable trend toward rate increases, with 40 lenders raising rates, while just 5 lowered them over the 12 month period from October 2016. This points to the extra risk interest only repayments pose for banks.

Borrowers in this category have been hit by an average rate increase of 0.25%, equal to a typical RBA rate hike. The average interest rate went from 4.15% in October 2016, to 4.40% today.

On a $500,000 home loan that change equates to $1,250 of extra interest per year.

Investors making principal and interest repayments – 0.27% increase

Investors are often hit harder by rate increases, and with APRA regulations tightening around new lending to ‘riskier’ borrower types, this year has been no different.

Rates rises for investors making principal and interest repayments were more or less on par with owner occupiers on an interest only loan, with an increase of 0.27%, to 4.61%. That change meant an extra $1,350 in interest over a year long period for those is this rate category.

This is a bit more than the equivalent of a Reserve Bank rate rise, reflecting the level of risk lenders see in investment lending. Again, there was a trend toward increases by lenders (53) rather than decreases (8).

Investors making interest only repayments – 0.53% increase

Where investors making principal and interest repayments saw a little over the equivalent of one typical RBA rate rise in the last 12 months, rates for interest only investor loans went up by an average of 0.53% – or more than two times an RBA rate rise.

There was an overwhelming trend towards lenders increasing instead of decreasing rates in this category as well, with just 1 lowering rates, while 45 hiked.

That brought the average rate from 4.39% in 2016 to 4.92% this year, a change that meant a whopping $2,650 of extra interest paid on average. Not only is this rate increase bigger than that for other borrower types by a pretty large margin, but it also likely affected more people, considering ASIC data found two in three investment borrowers have an interest only loan.

What this means

While the banks have the prerogative to protect themselves against riskier lending by imposing higher premiums, overall I’d argue that the rate changes over the past year have potentially had a negative effect on the wider economy.

Most borrower categories saw rate increases equivalent to one or more Reserve Bank hikes, which can have a significant impact on household budgets – and the economy overall. As more money goes toward home loan repayments and borrowers brace for more rate hikes to come, consumer confidence drops, and the economy starts to stall.

And that’s bad news for everyone, risky home loan or not.

About the Author: After starting his career working for the banks, Peter Marshall has spent the last 15 years helping consumers compare financial products. At Mozo he manages the Data Team which keeps track of banking, insurance and energy products in Australia.

How Much Can Mortgage Holders Really Save By Refinancing?

We showed recently that households with specific post codes may have significantly higher mortgage rates than their neighbours. As a result, significant savings may be made by seeking out a mortgage with a better rate.

Of course households need to be careful, as they may incur transaction costs, and even break costs if the loan is fixed.

But we went though our Core Market Model looking at those who refinanced in the past year. We then calculated the annual savings they had, on average achieved. Here are the results:

The larger the loan, the bigger the potential saving, which is why there are state variations. There were quite big differences between the old rate and new rates, and we incorporated break costs where appropriate.

This again highlights that households should be checking their rates and seeking out better, lower rates. Substantial savings are available, and when we consider the average loan life is more than 5 years, the potential savings are significant.


Time to Haggle

From The Real Estate Conversation.

It pays to haggle on your mortgage. Mystery shopping by mortgage comparison site Mozo has found that the Big Four banks are offering discounts of up to 0.82 per cent to customers who ask for a better deal.

Haggling for a better rate on your mortgage could save you hundreds of thousands of dollars over the life of your loan.

Mystery shoppers from online mortgage comparison site, Mozo, have found that the Big Four banks are offering discounts of up to 0.82 per cent to those who ask for a better rate on their loan.

And that’s not all. Some banks are offering incentives such as cashbacks and frequent flyer points to borrowers.

Mozo staff posing as first homebuyers, investors and refinancers asked for discounts at each of the Big Four banks. The potential savings they found were significant: a homebuyer had the potential to save $45,000 over the life of their loan, and a refinancer could save up to $86,000.

“We urge you to haggle,” said Mozo Property Expert, Steve Jovcevski.

“All four big banks were prepared to move on interest rates when pushed, even for investors,” he said.

In 2015, the mystery shoppers who posed as investors weren’t offered any discounts, he said.

“Given APRA’s recent clamp down on interest only loans allowing no more than 30 per cent of new residential mortgage loans to be interest only, we are surprised to see that banks are offering such competitive rates to potential investors,” said Jovcevski.

The survey found that the Commonwealth Bank offered the most competitive rates for first-home buyers, refinancers and investors. The Mozo mystery shoppers said the bank was ‘very keen’ to give a discount.

Mozo home loan mystery shop discounts

Source: Mozo.

  • For refinancers, discounts from 4.62% to 3.80% were on offer, equating to $2,873 in savings each year on a $500,000 loan.
  • For first-home buyers, a discount of 4.72% down to 4.00% resulted in a savings of $1,527 per year on a $300,000 loan.
  • For investors, the discount from 5.54% down to 4.82% results in a whopping $7,200 in savings per year on a $1,000,000 loan.

Westpac was the hardest of the Big Four to negotiate with. It only offered to price-match rates from other banks.

Ask, and you shall receive, says Mozo.

Data Shows Mortgage Rates Vary Within The Same Post Code

New research from HashChing and Digital Finance Analytics shows a
massive discrepancy in home loan interest rates across NSW, with vast differences in rates even within the same suburbs.

Data shows that in some cases, neighbours are paying up to $87,027 more for new owner occupied loans (105 basis point disparity), and $201,704 more for refinanced owner occupied loans (235 basis point disparity). The calculation is based on an average home loan of $500,000 over 25 years.

Those borrowers paying higher rates are essentially adding an extra three years of mortgage repayments (34 months) compared to those on a lower rate.

According to Mandeep Sodhi, CEO of online mortgage marketplace HashChing, borrowers are more empowered to take control of their finances than ever, but need to be more proactive when it comes to their home loan.

“The data shows that the highest and lowest rates are not confined to single suburbs, suggesting location is not the be all and end all when it comes to interest rates. In fact, at the time that the data was recorded, the lowest rate, 3.49 per cent, was available all over Sydney, including the Eastern Suburbs, Sydney CBD, North Shore, Inner-West, Northern
Beaches and South Sydney.

Multiple suburbs were also found to have both the lowest and highest interest rates on the same type of loans for their region. For example, homeowners in Artarmon had the lowest and the highest rates on the North Shore for refinanced investment loans, and new owner occupied

The lowest new owner-occupied rate in Artarmon was 3.94 per cent, on a loan amount of $950,000. While the highest was a rate of 4.45 per cent, for a lower loan amount of $600,000. And, although the loan size for both the highest and lowest rates for refinanced investment loans was the same ($420,000), the lowest rate was 3.85 per cent and the highest was 5.79 per cent, that is a leap of 1.94 per cent.

According to Martin North, Principal of Digital Finance Analytics, the amount that households pay is determined by a range of factors: whether it is a new loan or a refinanced loan, where the property is located, the type of loan, the loan to value ratio, and how the loan is negotiated.

“Borrowers shouldn’t necessarily take the first rate they are offered. It is not in a lender’s interest to automatically offer the golden egg. Rather, a negotiation has to take place, and borrowers have to have an appetite for it.

“The lender is providing a service for you, so be prepared to negotiate, or use a broker to help get the best deal,” said Mr North.

Those who have already settled on a home loan were also called to be more proactive in reviewing their rate and situation frequently.

“Too often borrowers have a ‘set and forget’ mentality when it comes to their mortgage. What they don’t realise is you can actually renegotiate a better rate with your current lender, or switch providers entirely which can save thousands, often completely outweighing any switching costs that may be involved,” said Mr North.

The data indicated that new owner-occupied loans across Sydney CBD, Northern Beaches and Western Suburbs all had average interest rates above 4 per cent, while South Sydney (3.95), Eastern Suburbs (3.94), Inner West (3.89) and North Shore (3.86) sat just below.

The average refinanced owner-occupied rate in the Inner West was a high 4.12 per cent, followed by the Eastern Suburbs (3.99) and North Shore (3.95).

The average loan size for those refinancing was $341,603 and the average loan size for a new home was $958,222 – with Northern Beaches and Western Suburbs residents borrowing the most.

* Note, high rates due to poor credit history or unique circumstances were removed from the data before analysis.


Borrowers in the dark over rising rates

From The Advisor.

A mortgage market analyst has said that he is “astonished” that banks don’t tell borrowers how much their repayments will be if rates were to rise.

More than half of borrowers have no clue what impact a 2 per cent rate rise will have on their home loan, according to Digital Finance Analytics principal Martin North.

“One of the things I’m amazed about is lenders don’t actually tell people what their repayments will be if rates were to rise by 2 or 3 per cent — in other words, back to normal levels,” Mr North told The Adviser.

“They do the calculations because of serviceability buffers, but that is not disclosed to consumers,” the principal said, adding that borrowers have very little “feel” of how their mortgages will behave in a rising interest rate environment.

“My research suggests that only half of them have a budget and know what they are spending. If you ask them what the effect of a 2 per cent rate rise will be on their mortgage, more than half have no idea.”

Mr North’s comments come amid growing speculation that the Reserve Bank will begin lifting the cash rate from next year. High levels of household debt are a chief concern for the RBA as it looks to tighten monetary policy.

Last week, Reserve Bank governor Philip Lowe warned that in the current environment, “household spending could be quite sensitive to increases in interest rates”.

DFA’s Martin North explained that on a $100,000 mortgage, a 25 basis point rate rise equates to about $30 more a month on mortgage repayments.

“On a million-dollar mortgage, you can see that even a small interest rate rise is a huge cash cost each month.”

His comments come as new figures show that a concerning number of property investors are unaware of how they will be effected by lending changes.

The 2017 PIPA Annual Investor Sentiment Survey, released this week, found evidence of mortgage stress among investors moving from interest-only (IO) to principal and interest (P&I) mortgages.

PIPA chair Ben Kingsley said that there are a few worrying figures that reflect a level of uncertainty among investors when it comes to finance.

“We did see some evidence of lending fatigue in terms of investors that have been forced to stop borrowing,” Mr Kingsley told The Adviser.

While the majority of investors with interest-only (IO) loans said that they won’t struggle to meet the new principal and interest (P&I) repayments once their current IO period expired, 12 per cent said that they would.

“I was a little bit worried that 12 per cent said if their loans switched to P&I they would struggle,” Mr Kingsley said.

“What was even more interesting to me was that 20 per cent were unsure. I would like to think that many investors should know what is important to them.”

Suncorp Lifts Interest Only Loan Rates

From Australian Broker.

Suncorp has today announced it is introducing new pricing methodology for interest only home lending.

Banking & wealth CEO David Carter said the bank currently calculated interest only rates based on the purpose of the loan, but would now also take into account the type of loan repayment.

“Currently, our interest only home lending is priced at the same rate as principal and interest home lending, however following recent changes in the market we have made changes to our systems to differentiate between borrowers repaying interest only, and those repaying principal and interest,” Carter said.

“This change is important as it will ensure the bank can maintain its position relative to regulatory requirements.

“With the market having effectively repriced interest only lending, and with some lenders having opted out of certain aspects of the market, it’s important for us to also support the focus on this type of lending.

“We are writing to customers this week to advise them of this change and the new interest only rates, which will come into effect on 1 November, 2017.

“As recently announced, we have launched a number of special offers, as well as reductions to some of our fixed rates, giving customers greater choice if they are wanting to move to a principal and interest product, and customers asking to switch will not be charged a fee for doing so.”

Suncorp says it recognises that increases in interest rates have an impact on customers with rate increases that remain below most other lenders. Variable interest rates on existing owner-occupier interest only rates will increase by 0.10% p.a and variable interest rates on all investor interest only rates will increase 0.38% p.a., effective 1 November, 2017.

Despite the changes, Suncorp says that its rates remain highly competitive with the majority of customers continuing to pay rates well below the headline, due to the various features and benefits of the bank’s products.

Variable interest rates on existing principal and interest owner-occupier and investor rates remain unchanged. Pricing for interest only construction loans also remain unchanged.

Virgin Money drops P&I investor rates

From Australian Broker.

Virgin Money has decreased the principal and interest investment rates on a number of its loan products for new applications.

The following changes will apply on Virgin Money variable interest rate for loans with an LVR less than or equal to 80%:

  • A rate of 4.09% for loans between $75,000 and $499,999 (decrease of 10 basis points)
  • A rate of 4.09% for loans between $500,000 and $749,999 (decrease of five basis points)
  • A rate of 3.99% for loans $750,000 and above (decrease of 10 basis points)

These rate cuts will come into effect on 25 September.

HashChing Launches New GroupBuy Solution

Two years after launching its online mortgage broking platform, HashChing says it is shaking up the home loans industry once again with a new GroupBuy solution. They claim the potential savings are huge by flipping the usual power dynamic of a bank and borrower. Customers join a group with similar lending requirements (such as refinancing an existing home loan), and participating banks and lenders bid against each other to win that group’s combined home loan portfolio.

With Australians paying an average 4.55 per cent discounted variable rate on owner-occupied properties, HashChing CEO Mandeep Sodhi said customers could stand to save at least $80,000 off their mortgages by refinancing through GroupBuy.

“We expect lenders to match or beat the interest rates that are currently being offered through HashChing partner mortgage brokers, which currently start from 3.59 per cent. Based on an average loan size of $500,000, borrowers can stand to save a significant amount of money.

“HashChing GroupBuy is a revolutionary and exciting new way for borrowers to tap into the collective bargaining power of a group, enabling them to get a better interest rate on their existing home loan using an online wizard that takes less than 10 minutes to complete, provided you have your paperwork ready. “For less than 10 minutes of your time, you could potentially save $80,000 over the life of your home loan,” said Mandeep Sodhi, CEO of HashChing. Jobs NSW, a government backed initiative that aims to make the NSW economy as competitive as possible, has recognised the innovation behind GroupBuy with a $100,000 funding grant.

GroupBuy is free and simple to use. Borrowers sign up through the dedicated GroupBuy portal on the HashChing website and confirm their interest in a particular campaign. Campaigns group borrowers with similar loan requirements together.

Campaigns will have strict eligibility criteria, such as refinance of owner-occupied properties only with a minimum borrowing of $500,000 per applicant and a minimum credit score.

Once each campaign is full, HashChing’s panel of lenders bid for the group of loans, giving the borrowers access to a range of low and below market offers. Borrowers are able to select the most appealing loan offer, and the chosen lender then gets in touch with each borrower separately to finalise the home loan.

Borrowers who drop out of the campaign at any point will be connected with a local partner broker, who can provide them with a personalised service for negotiating a better home loan rate at no cost.

HashChing will also use key learnings from the rollout of GroupBuy to create a deeper understanding of customer usage patterns – the end goal being to connect customers with brokers at the precise moment they need assistance, with enough information captured for broker to have a meaningful conversation. HashChing will initially conduct a GroupBuy Pilot for six weeks with four lender partners – Gateway Credit Union, Pepper Money, Switzer and MortgageEzy – and offer campaigns to consumers looking to refinance their home. Upon completion of the pilot HashChing will increase the participating lenders and consumer campaigns.

Gateway CEO, Paul Thomas, highlighted the synergy between the two organisations as a key driver for the partnership. “Partnering with fintechs such as HashChing is all about helping to create a more dynamic, innovative and competitive industry. Taking part in this group buying initiative is exciting because it allows us to help pioneer a unique customer experience. It’s the perfect way for us to further strengthen our commitment to fintech partnerships and differentiate from the big banks, while showcasing our benefits as a customer owned bank that always looks to empower the customer,” said Mr Thomas.

Aaron Milburn, Pepper Money’s director of sales & distribution, said: “Pepper Money is always looking for ways to maximise a customer’s access to finance. That’s why we partner with a variety of introducers, such as HashChing, who are using innovative methods like GroupBuy to increase a customer’s finance options.”

Peter James, CEO of Mortgage Ezy, said: “Mortgage Ezy is thrilled to partner with HashChing as a strong advocate for brokers. As one of the last truly independent non-banks in Australia, we relish the opportunity to continue to give the banks a run for their money.”

Marty Switzer, CEO of Switzer GroupBuy, said: “Mortgage stress is a stark reality for one in four mortgaged households, and there’s a strong likelihood of rates rising even further. A simple increase of half a per cent would boost the number of mortgage stressed households to a whopping one in three. As an industry, we need to be looking at ways we can relieve the financial pressure on over-stretched households. HashChing has taken this challenge by the horns with its innovative GroupBuy product, and I’m excited to be a part of it.

Since launching in August 2015, HashChing has received more than $10 billion worth of home loan applications, helped upwards of 18,000 customers find a better deal on their home loan, and boasts an expansive network of more than 600 verified brokers. “We are very pleased to be working with a dedicated group of lenders given the current discontent consumers feel towards the major lenders, especially during continual periods of out of cycle rate changes,” said Mr Sodhi. “For too long now, mortgage borrowers have felt powerless against the big four banks and other major financial institutions, who continue to hike up interest rates against a climate of high household debt and stagnate wage growth.

“HashChing GroupBuy puts the power back in their hands by having banks and lenders come to them and try to win their business. We believe this will be an incredibly satisfying and empowering experience, and we’re looking forward to making this publicly available in the near future.