This week, we saw the cash rate increase by 50bp to 2.35% - the first time the RBA has ever lifted the rate for 5 months in a row.
The cash rate may be at the highest level seen since December 2014 but, perhaps surprisingly, that doesn’t mean all interest rates are going up. A handful of lenders are bucking the trend to secure new business.
In this newsletter, we’ll focus on some of these lenders’ activities and discuss what’s happening in the mortgage market more broadly.
The RBA served up another jumbo cash rate hike this week but economists expect the central bank to slow down in coming months and deliver smaller increases of 25bp.
Queensland’s new law could lead to a potential land tax increase of up to 400% for some investors, the state government’s modelling shows.
There’s a reason why more than 1 million homes were deemed empty by the ABS on Census night - and it has more to do with the counting process than abandoned homes.
The average Australian had $39,439 in savings in August, according to a Finder survey.That’s up by 74.7% from the $22,565 average saved in March.
For investors, the average variable rate after accounting for September’s rate hike is 5.46%, according to RateCity.
Yet 24 lenders have axed variable rates for new customers, including property investors, since the RBA started lifting the cash rate in May 2022.
The deal you could get as a new customer isn’t small.
- The average existing investors variable rate was 49bp higher than that of new borrowers in July 2022, according to RBA data.
- A new customer includes those applying for a new loan or refinancing their existing loan.
Data from the ABS provides some context.
- New housing loan commitments fell by 11.3% in the same period.
- Meanwhile, total external refinancing was 7.6% higher in July 2022 compared with July 2021, so it’s no wonder banks are eyeing this business.
Property investors aren’t being forgotten - and for good reason.
- Investors have steadily increased their piece of the refinancing pie, up from 26% in March 2020 to 32.8% in July 2022.
While it’s not new that banks are luring borrowers with special rates, it is interesting to see it happen in a rising rate environment and only with variable rates.
In one of the biggest cuts recently seen, CBA has slashed interest rates for investors by up 80bp - for both principal and interest (P&I) and interest-only mortgages.
- Interestingly, the biggest 80bp rate cut is reserved for investors with an LVR between 80.01 and 90%.
- Borrowers in other LVR tiers get a 10bp rate cut.
- It’s the second time CBA has offered lower variable rates to new customers since the rate hikes started.
Another big 4 bank, NAB, has sliced variable rates by up to 30bp for investors with an LVR of less than 80% on P&I repayments.
Bankwest reduced variable rates by up to 20bp for investors with an LVR of 70.01-80% on P&I repayments.
Only 53% of bank customers feel their bank rewards long-term customers, a national survey of 1230 people by Pega and Omnipoll found.
But that hasn’t translated to higher switching activity.
- 61% of Australians have stayed loyal to their main bank for more than 10 years.
- 47% haven’t switched in more than 15 years.
The cost of the loyalty tax is substantial at almost half a percentage point (the interest rate gap between new and existing borrowers).
While the new home loan market has been showing a downward trend, it seems we’re yet to see any real customer retention efforts.
PUT IN THE LEGWORK
Let’s say you have an $800,000 mortgage over 25 years and it was at a variable interest rate of 3.00% in April 2022 (before the RBA began hiking the cash rate).
- If your lender, like most, passes on all rate rises in full, your rate will climb to 5.25% in September.
- In dollar figures, that’s an extra $1,000 per month in repayments.
Now what if you were to switch to another bank offering you a 4.75% variable interest rate over the same term?
- That half a percentage point could save you $233 per month.
- So instead of paying an extra $1,000 a month thanks to rising rates, you could be looking at an extra $767.
But no existing investor customer will benefit from the recent discounts if they don’t take action.
- If you’re on a variable rate, you may have more bargaining power than you think.
- But if you’re on a fixed rate, it’s likely you’ll need to pay a break cost - check this with your lender before you decide whether refinancing is right for you.
HIGH VS. LOW LVR
If your existing property has a lower LVR, you may even have stronger bargaining power.
But not in all cases.
- For example, NAB and Bankwest are cutting variable rates for those with the sweet spot of less than 80% LVR.
- On the other hand, CBA is offering the biggest discount to those with 80% - 90% LVR.
On the flip side, if you’re looking to refinance and have an LVR of more than 80%, you will typically need to pay LMI. Make sure you consider your LVR and the cost of LMI before deciding.
Prices at a glance
Annual price changes in Sydney and Melbourne have fallen into negative territory for both houses and units.Strength in the Brisbane market has faded, with price declines recorded in both house and unit markets.Darwin is the only capital city that saw house price growth in August.The decline of regional property values is accelerating, with the combined regionals down by -1.5% in August compared with -0.2% in July.