Superfund-owned bank ME has shelved plans to launch new credit cards after witnessing the success of “buy now, pay later” players like Afterpay and Zip, via Investor Daily.
The
bank posted its full-year results this week, which showed that
statutory net profit after tax fell by nearly 25 per cent to $67.1
million, down from $89.1 million the previous year. The lender recorded
$14.4 million of impairment losses in its credit card business.
ME
CEO Jamie McPhee said the bank halted its work in bringing more credit
cards to market after recognising a structural shift away from cards and
was therefore focusing its work on digital wallets.
He
explained: “Our work on digital wallets is progressing. We wanted to
bring that forward, and we’ve taken the opportunity to relook at the
credit card market, and what we’ve been seeing is that the number of
credit cards are in decline, while we’ve seen a significant increase in
the buy now, pay later entrants Afterpay, Zip, Flexi,” he said.
“We
think that the credit card market is being structurally disrupted, so
we’ve decided that we don’t think that is the right environment for the
bank to go forward in.”
Mr McPhee added that while the bank will
continue to have its low-rate credit card, it has revised its strategy
regarding a wider product range.
“We were thinking of coming to
market with a broader range of credit cards, including reward cards,
etc. but having had a look at the market, we don’t think that is the
right thing to do, strategically, going forward,” he said.
“So, that has obviously impacted the statutory earnings this time around.
“There
is no way we will be diverting our attention away from building out the
customer digital ecosystem like the digital wallets, NPP (national
payments platform), until we get that right up to a very, very market
competitive offerings.
“That will be our focus for the foreseeable focus. Anything else would be a distraction.”
It is expected that ME will be releasing its “digital ecosystem” progressively from 2020.
Consistent with the DFA surveys on household financial confidence the latest survey via ME Bank says:
Australian households are feeling overall worse about their net
wealth, jobs, income and living expenses with further significant
residential property price falls over the past six months and a
weakening labour market, ME’s latest Household Financial Comfort Report has revealed.
Consulting Economist for ME, Jeff Oughton, said that despite
remaining a little above the report’s seven-year average, financial
comfort across most of the 11 drivers that make up the Index fell, with
net wealth in particular seeing the largest drop, falling 3% to 5.54 out
of 10 during the six months to June 2019.
“The financial comfort of Australian households eased over the past
six months, with a significant fall seen in comfort with wealth. Despite
lower mortgage loan rates, expected cuts in personal income tax and
higher local and global equity prices, this is largely a consequence of
continued decreases in the value of residential property in many parts
of Australia,” said Oughton.
“Comfort with wealth would have fallen much more if it wasn’t for
record bond prices and rebounding share markets as well as the
Government’s retention of negative gearing on investment properties and
cash refunds for franking credits that saw household comfort with
investments increase.”
Financial comfort with investments (in financial assets, such as
shares and super, and property) was the only driver across the index to
improve (up only 1%), but was largely accrued by households with high
incomes. Households with incomes of $200k+ per annum and large
superannuation balances (above $1 million) reported increases to overall
financial comfort by 10% to 7.45 and 11% to 8.3, respectively, during
the six months to June 2019.
A weakening labour market and subdued income growth weigh on comfort
Financial comfort among households also eased as a consequence of a
weakening job market, which resulted in subdued wage growth, falling
comfort with income and high levels of both underemployment and job
insecurity.
In particular, financial comfort among working Australians
significantly deteriorated, with full-time workers recording a 3%
decrease to 5.86, part-time workers decreasing 4% to 5.1, casual workers
decreasing 1% to 5.02 and self-employed workers down 3% to 5.57.
Oughton said: “It’s clear from the latest Report that there are
increased concerns around job availability and underemployment. The
number of workers who felt it would be difficult to find a new job
increased by 16 percent to over 1 in 2 employees, which is the highest
recorded since late 2016.”
In June 2019, 35% of part-time and casual workers said they would
prefer to work more hours – seeking an additional 23 hours per week.
Meanwhile, 26% of all workers said they felt insecure in their current
job.
Households’ comfort with their incomes also fell by 1% to 5.69 in the
latest survey. Only 36% of Australian households reported an increase
in their annual income during 2018/19, falling 2 points from December
2018, and there were fewer income gains recorded across households in
general. Higher income households also continued to be much more likely
to report increased incomes during the past year.
Living costs and a lack of savings are household’s biggest financial ‘worries’
In net terms of the greatest financial ‘worries’ and ‘positives’,
cost of necessities was the most commonly cited worry in ME’s latest
report, nominated by 44% of households. This was followed by worries
about level of cash savings on hand (34%), ability to maintain lifestyle
in retirement (31%) and impact of legislative change (19%).
Looking more closely at savings, Oughton said that overall, comfort
with cash savings remained steady at 5.09 during the six months to June.
“Since the latest Federal Budget was announced, households, on
average, have slightly increased their precautionary savings. However,
this saving behaviour was predominantly among those with a smaller
amount of cash savings, and in contrast, those 10% of households
reportedly spending more than their monthly income are overspending by
more each month (up 18% in dollar terms).”
Oughton also noted that about 40% of households continued to spend all their monthly income.
When asked about retirement, the anticipated standard of living in
retirement has eased, falling 1% to 5.2, and notwithstanding a rise in
the comfort of households expecting to self-fund their retirements (up
to 7% to 7.31).
Furthermore, of all 11 components that make up the financial comfort
index, Australians still felt the least comfortable with their ability
to cope with a financial emergency, which fell slightly by 1% to only
4.77 out of 10. Indeed, 20% of households said they didn’t think they
could raise $3,000 in an emergency.
Residential property price correction a drag, but most households increasingly optimistic for 2019/20
While the residential property price correction has negatively
impacted wealth, comfort by housing tenure has been mixed over the past
six months. The Report reveals that comfort has lessened among both
homeowners with a mortgage and renters, which could be attributed to
tightening in the availability of credit, continued housing
unaffordability, and high housing debt and rental payment stress. In
contrast, comfort has risen amongst those who own their home outright
and geared property investors post-Federal election, with negative
gearing retained on investment properties.
Oughton said: “It’s evident that despite the latest monetary policy
changes, there remains high levels of housing debt worry and actual
payment stress among Australians.”
“The number of households contributing more than 30% of their
disposable income towards paying off a mortgage has remained steady at
about 43%, while the corresponding figure for renters has risen to 62% –
partly reversing the improvement reported in the previous two surveys.”
In contrast to the actual fall in dwelling prices during the past 12
months, the majority of households living in their homes and investment
property investors are feeling even more positive than six months ago
about the 12-month outlook for dwelling prices.
In fact, over 41% of households living in their homes expect their
dwelling prices to rise during 2019/20, while only 11% expect the value
of their home to fall (including only 3% who are expecting a large
fall).
However, the expectations of higher home values amongst
owner-occupiers varies significantly across major capital cities, with a
significant rise in Brisbane (46%), Sydney (45%) and Melbourne (42%) –
in comparison to Perth (25%).
Investors are relatively more optimistic than owner-occupiers, albeit
less so than six months ago: 46% of investors expect the value of their
investment properties to rise during the next 12 months, while only 9%
anticipate a fall (including 2% who anticipate a large fall). Investors
in Sydney are the most optimistic about property values (with 54% of
investors expecting rises and only 6% expecting a fall), followed by
investors in Brisbane (50%) and in Melbourne (44%).
Oughton summarised the key winners and losers from ME’s 16th Household Financial Comfort Report:
Winners:
Households not reliant on the government aged pension in their retirement
Households with super balances (greater than $1 million) – financial comfort up 11% to 8.3
Young and middle-aged singles/couples with no children
Geared investors in residential property markets – financial comfort up 8% to 6.9
NSW/ACT and VIC – the highest levels of financial comfort was found in NSW/ACT (5.64), followed by Victoria (5.55)
Losers:
QLD, TAS and SA/NT – overall comfort fell in these states
Brisbane, Perth and Adelaide residents – comfort in these cities
dropped to match the low levels of comfort reported in regional
Australia
Working Australians – comfort significantly deteriorated among
workers, with full-time workers recording a 3% decrease to 5.86,
part-time workers decreasing 4% to 5.1, casual workers decreasing 1% to
5.02 and self-employed workers down 3% to 5.57
WA workers – this state reported as being the most difficult job
market, with over 60% expecting it would be difficult to get a new job
in WA
Renters – rental payment stress was reported by 62% of renters, up 11 points during the six months to June 2019.
ME has announced it will increase its home loan interest rates for both new and existing borrowers by up to 18 basis points, effective 7 February; via The Adviser.
The lender will also increase its advertised new business variable
rates by 8 basis points, effective 4 February, following a 10 basis
point increase to some advertised new business variable rates in
December 2018.
ME CEO, Jamie McPhee, said attributed the bank’s decision to the sustained rise in wholesale funding costs.
“The changes are in response to the sustained increase in the cost of funds,” he said.
“Bank bill swap rates (BBSW) – the key determinant of the cost of funds – have remained elevated.
“It was a difficult decision but we have sought the right balance
between delivering a strong customer value proposition across our
product range while responding to the sustained increase in funding
costs.”
This follows a move from ING Australia, which yesterday announced
that, effective from Thursday, 7 February, it will increase its variable
mortgage rates for all home loan customers by up to 15 basis points.
The bank’s revised variable home loan rate now starts from 3.93 per cent.
ING’s latest rate rise follows a 10 basis point increase in July
2018, in line with rate moves from several other lenders in response to rising wholesale funding costs.
NAB announced increases of up to 16 basis points on its variable home
loan offerings, with its subsidiary UBank also announcing increases
earlier this year, lifting its fixed home loan rates by up to basis
points.
The Bank of Queensland and Virgin Money have also repriced their
mortgages, increasing rates earlier this month by 18 basis points and 20
basis points, respectively.
The biannual survey released Monday asked 1500 people to rate their household comfort for the first half of 2018, showing short-term cash savings to be the biggest area of decline.
A bright spot in the otherwise gloomy findings came for renters, who reported a lessening in financial stress, thanks largely to a cooling housing market and falling rents.
The report’s Household Financial Comfort Index, which surveys how ordinary Australian perceive their own financial wellbeing, saw a 3 per cent drop on the February results to 4.93 out of 10 for the first half of 2018 – “its lowest level in a couple of years”.
Living expenses were the biggest reason for using short-term savings, the survey found.
In the past year, 17 per cent of households could not always pay their utilities bills on time, 19 per cent sought financial help from family or friends and 15 per cent pawned or sold something to buy necessities, the findings showed.
“Australians generally can dip into their savings to get by,” consulting economist for ME Jeff Oughton said.
“However some households may get to a point where there’s no more savings to draw from,” Mr Oughton said.
“Currently, around a quarter of Australian households have less than $1000 in cash savings,” he added.
The report said the worst-affected demographic was young singles and couples under 30 with no kids.
This group reported falls across all areas of comfort, including in their ability to handle a financial emergency.
Meanwhile, ‘baby boomers’ continued to report the highest financial comfort of all generations.
The report revealed housing stress was still broadly unchanged for households with mortgages.
Some 45 per cent of mortgage holders reported to they contributed more than 30 per cent of their disposable income toward their home loans the past six months.
“The good news for renters is that financial stress has lessened somewhat during the past six months, thanks to the housing market cooling and rents falling,” Mr Oughton said.
“While almost three-quarters (72 per cent) of renters were previously contributing over 30 per cent of their disposable income towards rent, this number dropped significantly to two-thirds (67 per cent in the most recent survey,” he added.
MEBank has apologised to customers and said that it is working to reimburse around 2,500 mortgagors affected by a “system error” that led to some borrowers being charged a higher interest rate without adequate notice.
On 17 April 2018, Members Equity Bank (ME) announced that it would be increasing its variable home loan interest rates.
Under the changes, ME’s standard variable rate for existing owner-occupier principal and interest (P&I) borrowers with an loan-to-value ratio (LVR) of 80 per cent or less increased by 6 basis points to 5.09 per cent p.a. (comparison rate of 5.11 per cent p.a.).
Variable rates for existing investor principal and interest borrowers increased by 11 basis points, while rates for existing interest-only borrowers increased by 16 basis points.
According to ME CEO Jamie McPhee, the changes were brought in as a result of increasing funding and compliance costs.
Speaking last month, Mr McPhee said: “Funding costs have been steadily increasing over the last few months primarily due to rising US interest rates that have flowed through to higher short-term interest rates in Australia.
“In addition, ME continues to transition its funding mix to ensure the requirements of the Net Stable Funding Ratio will be met, and this is also increasing our funding costs.
“At the same time, industry reforms and increasing regulatory obligations are increasing our compliance costs.”
He continued: “This was not an easy decision, but rising costs have forced us to reset prices to maintain a balance between borrowers, depositors and our industry super fund shareholders and their members, all while ensuring we continue to grow and provide a genuine long-term banking alternative.
“We will continue to assess market conditions and make changes to prices to maintain this balance if necessary.”
While the bank did publicise the rate change two days before it was due to take effect, usual practice is for a mortgagor to be notified 20 days in advance of an interest rate change.
According to the bank, however, a “system error” led to customers being charged the new rates on 19 April without the adequate time warning.
A ME spokesperson said that the “proper process” is for ME to write to customers to notify them their repayments are going up “but not to increase their repayments until at least 20 days after they get that notification”.
“Unfortunately on this occasion, due to a system error, we increased the home loan repayments immediately for about 2,500 owner-occupier and investor customers — about 1 per cent of our home loan accounts.”
The bank reportedly detected the “error” the following day (20 April) and “immediately intervened to ensure no additional customers were affected”, the spokesperson said.
“We are now working on reimbursing and communicating with those impacted customers as a matter of urgency. We are clearly very sorry for the error and the impact it has had on customers,” the CEO said.
The way banks have been disclosing interest rate changes and remediating customers for bank errors has been thrown into the spotlight recently, thanks to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
More evidence of the rising costs of funds as ME Bank says it has lifted its standard variable rate on existing owner-occupier principal and interest mortgages, effective today, 19 April 2018.
ME’s standard variable rate for existing owner-occupier principal-and-interest borrowers with an LVR of 80% or less, will increase by 6 basis points to 5.09% p.a. (comparison rate 5.11% p.a.^).
Variable rates for existing investor principal-and-interest borrowers will increase by 11 basis points, while rates for existing interest-only borrowers will increase by 16 basis points.
ME CEO Mr Jamie McPhee said the changes are in response to increasing funding costs and increased compliance costs.
“Funding costs have been steadily increasing over the last few months primarily due to rising US interest rates that have flowed through to higher short-term interest rates in Australia.
“In addition, ME continues to transition its funding mix to ensure the requirements of the Net Stable Funding Ratio will be met, and this is also increasing our funding costs.
“At the same time, industry reforms and increasing regulatory obligations are increasing our compliance costs.
“Despite these increases ME’s standard variable home loan for owner-occupier principal-and-interest borrowers with LVR 80% or less, is still lower than the major banks as it has been since ME became a bank in 2001. In addition ME also continues to offer some of the highest deposit rates in the market.
“This was not an easy decision, but rising costs have forced us to reset prices to maintain a balance between borrowers, depositors and our industry super fund shareholders and their members, all while ensuring we continue to grow and provide a genuine long-term banking alternative,” McPhee said.
“We will continue to assess market conditions and make changes to prices to maintain this balance if necessary.”
More hikes will follow, across the industry together with reductions in rates paid on deposits as the fallout of the Royal Commission and higher international funding costs take their toll.
The 10-year US Bond rate is moving higher again, following some slight fall earlier in April. Have no doubt, funding cost pressure will continue to rise.
^Home loan comparison rates calculated on a loan of $150,000 for a term of 25 years, repaid monthly.
Despite improved job conditions and households reporting healthier financial buffers, the overall financial comfort of Australians is not advancing, according to ME’s latest Household Financial Comfort Report.
In its latest survey, ME’s Household Financial Comfort Index remained stuck at 5.49 out of 10, with improvements in some measures of financial comfort linked to better employment conditions – e.g. a greater ability to maintain a lifestyle if income was lost for three months – offset by a fall in comfort with living expenses.
“Households’ comfort with paying their monthly living expenses fell 3% to 6.40 out of 10 during the six months to December 2017, the lowest it’s been since mid-2014,” said Jeff Oughton, ME consulting economist and co-author of the report.
“In fact, ME’s latest report shows many households’ financial situation is getting worse and again the culprit is living expenses, with 40% reporting this as a key reason their situation is worsening.
“Around 46% of households surveyed also cited the cost of necessities such as fuel, utilities and groceries as one of their biggest worries.
“It’s unsurprising households are still feeling the pinch, given subdued income growth and the rising costs of energy, childcare, education and health.
“If it wasn’t for a decline in comfort with monthly living expenses, the report’s overall Household Financial Comfort Index would’ve likely increased,” said Oughton.
“The rising cost of necessities is currently holding Australians back when it comes to their finances.”
Oughton said that over the past year, 16% of households were not always able to pay their utility bills on time, while 19% sought financial help from family or friends and 13% pawned or sold something to buy necessities – a clear illustration of bill stress, particularly for those on lower incomes.
In other findings from the ABS, childcare costs have doubled in the past six years, while the cost of primary and secondary education has increased by 50%.
But Oughton said one household group of Australians is bucking the trend.
“Households under 35 years old without children – commonly dubbed the ‘avocado generation’ − many of whom have benefited from improved employment conditions without the burden of childcare costs or potentially a mortgage, are not as worried. Their financial comfort rose by 8%, and their comfort with living expenses increased 2% during 2017.”
Oughton said the report’s most encouraging result was households’ improved ability to maintain a lifestyle, if income was lost for three months, which rose 3% to 4.82 out of 10 in the past six months to December 2017 – its highest outcome since 2015. This finding reflects stronger labour market conditions, although mainly among full-time workers.
Victorians’ comfort plummets, while NSW’s rises
Household financial comfort in Victoria dropped significantly below New South Wales’ financial comfort for the first time since the survey began in 2011.
New South Wales improved by 3% in the past six months to 5.83 out of 10 in December 2017, the highest in three years, while Victoria fell 7% to 5.30 out of 10, its lowest level in the past six years.
“New South Wales’ superior financial comfort can be linked to greater confidence in handling a financial emergency (loss of income for three months) – a reflection of healthier employment conditions in the state,” said Oughton.
“Meanwhile, Victoria’s decline can be attributed to falls across most key drivers of financial comfort, including lower confidence in handling a financial emergency (loss of income for three months) and less comfort with investments.
“The discrepancy between the two states is significant given both have traditionally felt similar levels of comfort in the past,” added Oughton.
High levels of mortgage payment stress – set to worsen
More than half of households (56%) renting or paying off a mortgage reported they are contributing over 30% of their disposable household income towards this cost – a common indicator of financial stress – with 72% of renters spending 30% or more of their disposable income on rent and 46% of those paying off a mortgage putting 30% or more of their disposable income towards this.
Furthermore, the proportion of households who ‘worried about their household’s level of debt over the last month’ increased by 1 point to 38%. This proportion increased to 51% among mortgage holders, compared to 27% with no mortgage and 23% who own their own home outright.
“Seven per cent of households reported they could not always pay their mortgage on time during the past year, and 7% could not pay their rent on time.”
“Mortgage defaults may escalate if interest rates increase, particularly among vulnerable low-income households already dealing with the rising cost of necessities,” said Oughton.
The gap between Australia’s rich and poor continues to widen
A disparity in financial comfort between some household groups remain, with 30% of households reporting their financial situation worsened in the past year, while 35% reported it remained the same and 35% reported it improved.
“Around 61% of households with ‘low levels of comfort’ reported a significant worsening in their overall financial situation during 2017, while almost 70% of households on ‘high levels of comfort’ reported that their financial comfort improved during 2017. In other words, the rich are getting richer and the poor are getting poorer,” said Oughton.
Hardest hit were households with incomes below $40,000, 45% of which said their financial situation had worsened, as well as single parents and baby boomers, 36% of which reported their situation had worsened.
For the third consecutive report, disparity was also evident in household income improvements, with more than 50% of those earning over $100,000 reporting income gains while only 29% of those earning between $40,001 and $75,000 reporting income gains.
“Despite continued improvement in the labour market and general economic conditions, the benefits are not trickling down to many households. For these households it will only get worse as the cost of necessities keeps going up,” added Oughton.
Other findings
SA still feeling the pinch: Household financial comfort in South Australia fell by 4% to 5.00 out of 10 during the past six months, to remain the lowest of the mainland states.
WA and QLD continue to trend higher: Comfort in both Western Australia and Queensland remained broadly unchanged at 5.49 and 5.39 out of 10 respectively. Both resource-dominated regions are recovering from the mining downturn to be more in line with the level of household financial comfort reported across Australia as a whole.
The Household Financial Comfort Report is based on a survey of 1,500 Australians conducted by DBM Consultants in December 2017. The Report is produced every six months, with the first survey conducted in October 2011.
According to ME Bank, in a study of 1500 Australian adults, 43% of respondents said they were reliant on future house prices to achieve future life / financial goals, with 10% completely reliant.
But it’s a tug-of-war as to which way we want prices to go: 38% want prices to increase while 37% want them to fall.
Where you sit largely comes down to your property ownership status: 39% of those who own the home they live in and 47% who own an investment property indicated they are ‘reliant’ on future prices, presumably increasing, while 48% of those who don’t own a property also say they are reliant, presumably wanting prices to fall.
Younger respondents indicated they are more reliant on future house prices than older: 51% of Millennials (25 to 39 year olds) said they are reliant compared to 30% of Baby Boomers (55-74 year olds).
Most tellingly, the survey indicates more Australians would benefit from property prices falling than rising, with only 28% indicating they’d benefit by selling if prices continued to rise compared to 47% who said they’d benefit by buying in if property prices fell.
A quarter of home owners happy to see house prices to fall
ME home loan expert, Patrick Nolan, said he was surprised to find 37% of respondents want property prices to fall, including 24% of those who own a home and even 20% of those with an investment property, compared to 38% of who want prices to continue rising 38%.
“Traditionally Australians fall into two camps when it comes to property prices: owners, who want them to rise, and non-owners, who want them to fall.
“But with high prices disrupting the dream of home ownership and the benefits that brings, views are changing.”
“That property owners were willing to see asset values fall is a sure sign house prices had reached heights many think are unfair,” Nolan said.
When asked why they want prices to fall, the overwhelming reason given was to help address the housing affordability issue (57%), a sentiment expressed by 97% of those with property.
The bulk of those wanting house prices to continue rising are property owners: 49% of home owners and 55% of investors.
Industry super fund-owned bank ME has reported a full year underlying net profit after tax of $85.2 million, up 14% on the previous Financial Year.
ME CEO, Jamie McPhee, said “it was another strong performance and continued ME’s strong profit growth over the past five years”.
McPhee said NPAT growth largely reflected a 12% increase in ME’s home loan portfolio, with net interest margin falling 5 basis points to 1.50% and total expense growth of 3%. ME’s NPAT has grown at an annual compound rate of 28% since 30 June 2012.
We plotted the portfolio value of ME’s mortgage book using APRA data, relative to market growth, and owner occupied loans in particular are growing fast.
The relative percentage growth highlights the trends even more strongly.
“Growth has been the main story for ME in FY17 with home loan settlements up 36% to $6.2 billion, an increase in total assets of 7% to over $26.5 billion, customer deposits up 20% to $12.6 billion, and customer numbers up 15% to 420,000.”
McPhee said “the Bank’s performance is particularly positive in light of the external operating environment – softening credit growth, macro-prudential restrictions on home lending, regulatory imbalances that give the major banks a competitive advantage, and a banking industry ratings downgrade by S&P in May.”
Underlying return on equity increased 10 basis points to 8.3% continuing the trend towards the medium-term target of 10%, while the cost to income ratio reduced further from 65.8% to 63.5%.
ME’s statutory profit after tax, which includes the amortisation of realised losses on hedging instruments ($7.3 million), loss on sale of the business banking portfolio ($6.2 million), transition costs associated with a significant new technology partnership with Capgemini ($6.4 million) and legacy IT decommissioning costs ($3.4 million), was $61.9 million (FY16: $76.8 million).
ME’s commercial partnerships with its industry fund owners continue to bear fruit: ME’s member benefits program, which it uses to market directly to members of industry super funds and unions, is now generating 13% of the Bank’s home loan settlements.
ME’s brand overhaul in FY16 is supporting growth with awareness hitting a record high 55% in July 2017, up 15 points since the change was implemented.
The annual review has yet to be posted and the available financial performance information is very limited.
ME today announced several changes across its home loan portfolio.
The Bank will decrease by 10 basis points its principal-and-interest variable home loan offer to new owner-occupier borrowers who are applying for a loan in a member package valued at $150,000 or more and with an LVR at 80% or less.
It will also increase by 40 basis points, all interest-only variable and fixed home loan offers to new borrowers.
Both these changes are effective Saturday 1 July.
ME will also increase by 40 basis points its reference rates on all existing variable interest-only loans. This change will affect existing customers in August.
The bank said the changes were being made to manage regulatory requirements on interest-only lending.
ME CEO Jamie McPhee said “the changes are necessary to ensure the Bank complies with macro-prudential measures introduced by APRA, while encouraging existing interest-only home loan borrowers to switch to principal-and-interest.
“Owner-occupier principle-and-interest home loan rates are at record lows. Now is a great time to pay down the principal on your home loan.
“ME does not apply a fee for switching from interest only to principal-and-interest.”
