Finance advice

Investor loan rate rises linked to APRA benchmarks: ACCC

By Sasha Karen
Investor loan rate rises

The Australian Competition & Consumer Commission has released an interim report into the “opaque pricing” of Australia’s five biggest banks, which reveal APRA’s measures to try and curb investor lending may have been taken too far by the banks.

The Residential Mortgage Price Inquiry interim report looked at ANZ, Commonwealth Bank of Australia, Macquarie Bank, NAB and Westpac, which collectively held $1.3 trillion in residential mortgages in December 2017 or 84 per cent of all residential mortgages in Australia.

The report showed that the major banks’ lack of discounts are not working in the interest of consumers to offer low rates, but to keep the status quo, according to ACCC chairman Rod Sims.

“We do not often see the big four banks vying to offer borrowers the lowest interest rates. Their pricing behaviour seems more accommodating and consistent with maintaining current positions,” Mr Sims said.

“We have seen various references to not wanting to ‘lead the market down’, to have rates that are ‘mid-ranked’ and to ‘maintain orderly market conduct’.”

Looking at investor lending, the report analyses two major initiatives by APRA impacting investors: the limit of investor lending growth to 10 per cent in 2014 and the limit of mortgages with interest-only repayments to 30 per cent of the total of new mortgage lending in 2017.

In order to attract less investors, the banks tried to lower discounts for new investor borrowers and increase headline interest rates. Once some of the five banks started these measures, the others followed suit, “otherwise they would risk being inundated with new loans that (if approved) would put them in breach of APRA’s investor growth limits”, the report stated.

“As a result, there is now less scope or incentive for [the five banks and other authorised deposit-taking institutions (ADIs)] to lower interest rates to attract investor borrowers due to the risk of non-compliance with APRA’s investor growth limits.”

In 2017, the five banks all raised headline variable interest rates for interest-only loans, with the big four banks claiming the change was due to the interest-only cap. From 2015 to 2017, the five banks raised rates for investors and interest-only loans up to 110 basis points higher than owner-occupier loans.

“Prior to 2015 the same headline interest rate would have applied to both groups of borrowers,” the report said.

It was not until by mid-2017 that the five banks had different rates for principal and interest and interest-only loans for both owner-occupiers and investors.

The result of APRA’s benchmark were described as preventing some of the five banks from offering lower loans from their competitors; interest-only repayments saw an increase between 25 to 36 basis points through the first half of 2017, while also perpetrating the belief that raising these rates would be okay, as the other banks would follow suit because of the APRA benchmarks.

Prudential benchmarks may be reducing price competition among ADIs for investor and interest-only mortgages.

“Overall, APRA’s prudential benchmarks have impacted the scope for ADIs to compete on price for residential mortgages for investor and interest-only borrowers as any offer of interest rates below those available from other lenders may attract too many new borrowers and put the ADI at risk of non-compliance,” the report said.

Citing an example to prove their point, one of the five banks released “special rates” for investor borrowers. In an internal paper, the bank then later decided to withdraw the offer.

“This will ensure that the APRA growth cap will not be breached in September… [and] investor volume will continue to be monitored weekly to ensure the cap is not breached,” the paper stated, according to the report.

The data released in the report correlates to comments made by RateCity’s money editor Sally Tindall, who claimed interest-only fixed rate loans would be discounted in the next few weeks.

“Property investors are people who particularly take advantage of interest-only loans, often for tax reasons, and the fact that the number of interest-only loans has plummeted is very telling,” Ms Tindall said.

“APRA asked [the banks] to cap all new interest-only lending to 30 per cent, and they’re down to almost 15 per cent. So, what we believe we’ll see is interest-only rates coming down as a result of this overshooting the mark.

“We’ve already seen the big four banks cut fixed rates for interest-only lending, and I do think we’ll see more rate cuts to come in the next few weeks.”

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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
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Should a real estate title be in one person’s name only?

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A property investment plan years in the making
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Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds
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  string(38) "From pirouettes to property investment"
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  ["introtext"]=>
  string(381) "

If Mark Hodge’s face looks familiar to you it could be because of his time working as a professional entertainer which saw him working with the Australian ballet, appearing on multiple seasons of Dancing with the Stars and touring in musical theatre for 17 years. What you may not know is that Mark is also heavily involved in the short-term property rental marketspace.

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Mark joins host Phil Tarrant to discuss his transition from entertainer to investor, a journey pushed forward by dance related injuries and even a hit and run which saw him needing to find alternate methods to bring in an income. Mark shares how bad long-term tenants and a gang member guided him to the short-term rental market, and how this pushed him into helping others to realise the same benefits.

Mark will also address the common concerns, discuss what his company Maisonnets specialise in and unpack how they are making the process of filling short term rentals easier for investors.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

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AREAS MENTIONED:

Melbourne
Sydney
Rushcutters Bay
Maroubra
Potts Point

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From pirouettes to property investment

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