Slight investor return to market could usher in ‘APRA mark III’

Interest-only loans saw the largest increase, with the rate jumping 0.1 per cent up to 5 per cent for an average variable rate. For an average three-year and five-year fixed rate, RateCity recorded 0.08 per cent and 0.09 per cent to 4.61 per cent and 5.02 per cent respectively.

Principal and interest rates saw slighter raises, with 0.03 per cent for an average variable rate to 4.79 per cent, 0.06 per cent for an average three-year fixed rate to 4.94 per cent and 0.05 per cent for an average five-year fixed rate to 4.94 per cent.

Owner-occupiers fared much better in comparison, with average variable rates for interest-only rising 0.06 per cent to 4.57 per cent, 0.03 per cent for an average three-year fixed rate to 4.29 per cent, and 0.04 for an average five-year fixed rate to 4.71 per cent.

Principal and interest loans for owner-occupiers were the clear winners in terms of interest rate changes, with the interest rate for an average variable rate going down 0.04 per cent to 4.34 per cent, rising only 0.01 per cent for an average three-year fixed rate to 4.22 per cent, and going down 0.01 per cent for an average five-year fixed rate to 4.62 per cent.

RateCity CEO Paul Marshall was quoted in the report saying that despite the big four banks eliminating ATM withdrawal fees at the end of September and the cash rate holding at 1.5 per cent, mortgage rates had been “drifting higher”.

Mr Marshall attributed the rate rises for interest-only loans to APRA’s edict to banks to limit interest-only loans for 30 per cent of new borrowing, as well as being cautious to approving interest only loans for LVRs above 80 per cent and keeping investor loans below 10 per cent.

“As a result, there is now a growing pricing gap between owner-occupiers paying principal and interest and investors paying interest-only,” he said.

“On average, our data shows investors paying interest-only are being charged 0.66 percentage points more for their mortgage.

“Only time will tell if APRA’s strategy works. Initial figures indicate that banks are convincing new borrowers to pay down their debt. That is a win.”

Despite APRA’s measures, Mr Marshall said investor numbers have begun to return to the market.

“Investors, on the other hand, are hard to discourage. The most recent ABS data (for August) shows that while there … was a momentary retreat from the market, investors are not done yet, with a small, but notable, bounce-back over the month,” he said.

“If investors continue to regain ground, it will almost mirror their behaviour following APRA’s first crackdown in 2015, which saw investor finance data take a dive and regain entirely within eight months.

“If this happens, we should brace for APRA mark III because if investors don’t slow down, neither will the regulator.”