There is a lot of movement in the Australian mortgage industry right now with major lenders cutting interest rates following the Commonwealth Bank of Australia’s latest round of interest-only mortgage cuts. This is great news for investors, following the previous interest rate hike for investment loans.
What Has Caused This Rate Slash?
The big four lenders started losing market share to smaller lenders and regulation-lite non-bank financial institutions when they slammed on the brakes to meet Australian Prudential Regulation Authority’s 30 per cent cap on interest-only loans.
CBA’s CEO-elect, Matt Comyn, recently flagged plans to rebuild interest-only market share after overshooting the regulatory 30 per cent target and ending in the low 20s. CBA and the other majors are now jostling to win back any shortfall in their interest only books to meet the maximum 30% target.
Who Has Been Effected and What Institutions Are Taking Action:
The bank’s mortgage growth in the 12 months leading up to December 31 2017 was about 5 per cent, compared with about 6 per cent system growth and more than 11 per cent for non-bank financial institutions (NBFI).
- Westpac Group, which has the highest exposure to interest-only loans with about 50 per cent of its loan book, also reduced new interest-only flows to about 22 per cent and has also begun selectively cutting rates.
- Australia and New Zealand Banking Group, which announced only 14 per cent of loans during the most recent quarter were interest-only, is expected to follow. Other lenders have also indicated they are well under lending caps.
- CBA, the nation’s largest mortgage lender, has cut a range of fixed rate interest-only home loans ranging from one to four years by up to 50 basis points. For example, a two-year fixed interest-only investment home loan has a headline rate of 4.34 per cent.
What does this mean for investors?
If your client has an investment loan with a high interest rate, it is important to refer them to Launch Finance to discuss their options. If their loan is up for review, they could potentially save thousands each year on their loan repayments by taking advantage of the lower interest rates for investors currently.
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