Tag: Mortgage Rates

Borrowers in the dark over rising rates

From The Advisor.

A mortgage market analyst has said that he is “astonished” that banks don’t tell borrowers how much their repayments will be if rates were to rise.

More than half of borrowers have no clue what impact a 2 per cent rate rise will have on their home loan, according to Digital Finance Analytics principal Martin North.

“One of the things I’m amazed about is lenders don’t actually tell people what their repayments will be if rates were to rise by 2 or 3 per cent — in other words, back to normal levels,” Mr North told The Adviser.

“They do the calculations because of serviceability buffers, but that is not disclosed to consumers,” the principal said, adding that borrowers have very little “feel” of how their mortgages will behave in a rising interest rate environment.

“My research suggests that only half of them have a budget and know what they are spending. If you ask them what the effect of a 2 per cent rate rise will be on their mortgage, more than half have no idea.”

Mr North’s comments come amid growing speculation that the Reserve Bank will begin lifting the cash rate from next year. High levels of household debt are a chief concern for the RBA as it looks to tighten monetary policy.

Last week, Reserve Bank governor Philip Lowe warned that in the current environment, “household spending could be quite sensitive to increases in interest rates”.

DFA’s Martin North explained that on a $100,000 mortgage, a 25 basis point rate rise equates to about $30 more a month on mortgage repayments.

“On a million-dollar mortgage, you can see that even a small interest rate rise is a huge cash cost each month.”

His comments come as new figures show that a concerning number of property investors are unaware of how they will be effected by lending changes.

The 2017 PIPA Annual Investor Sentiment Survey, released this week, found evidence of mortgage stress among investors moving from interest-only (IO) to principal and interest (P&I) mortgages.

PIPA chair Ben Kingsley said that there are a few worrying figures that reflect a level of uncertainty among investors when it comes to finance.

“We did see some evidence of lending fatigue in terms of investors that have been forced to stop borrowing,” Mr Kingsley told The Adviser.

While the majority of investors with interest-only (IO) loans said that they won’t struggle to meet the new principal and interest (P&I) repayments once their current IO period expired, 12 per cent said that they would.

“I was a little bit worried that 12 per cent said if their loans switched to P&I they would struggle,” Mr Kingsley said.

“What was even more interesting to me was that 20 per cent were unsure. I would like to think that many investors should know what is important to them.”

Suncorp Lifts Interest Only Loan Rates

From Australian Broker.

Suncorp has today announced it is introducing new pricing methodology for interest only home lending.

Banking & wealth CEO David Carter said the bank currently calculated interest only rates based on the purpose of the loan, but would now also take into account the type of loan repayment.

“Currently, our interest only home lending is priced at the same rate as principal and interest home lending, however following recent changes in the market we have made changes to our systems to differentiate between borrowers repaying interest only, and those repaying principal and interest,” Carter said.

“This change is important as it will ensure the bank can maintain its position relative to regulatory requirements.

“With the market having effectively repriced interest only lending, and with some lenders having opted out of certain aspects of the market, it’s important for us to also support the focus on this type of lending.

“We are writing to customers this week to advise them of this change and the new interest only rates, which will come into effect on 1 November, 2017.

“As recently announced, we have launched a number of special offers, as well as reductions to some of our fixed rates, giving customers greater choice if they are wanting to move to a principal and interest product, and customers asking to switch will not be charged a fee for doing so.”

Suncorp says it recognises that increases in interest rates have an impact on customers with rate increases that remain below most other lenders. Variable interest rates on existing owner-occupier interest only rates will increase by 0.10% p.a and variable interest rates on all investor interest only rates will increase 0.38% p.a., effective 1 November, 2017.

Despite the changes, Suncorp says that its rates remain highly competitive with the majority of customers continuing to pay rates well below the headline, due to the various features and benefits of the bank’s products.

Variable interest rates on existing principal and interest owner-occupier and investor rates remain unchanged. Pricing for interest only construction loans also remain unchanged.

Virgin Money drops P&I investor rates

From Australian Broker.

Virgin Money has decreased the principal and interest investment rates on a number of its loan products for new applications.


The following changes will apply on Virgin Money variable interest rate for loans with an LVR less than or equal to 80%:

  • A rate of 4.09% for loans between $75,000 and $499,999 (decrease of 10 basis points)
  • A rate of 4.09% for loans between $500,000 and $749,999 (decrease of five basis points)
  • A rate of 3.99% for loans $750,000 and above (decrease of 10 basis points)

These rate cuts will come into effect on 25 September.

HashChing Launches New GroupBuy Solution

Two years after launching its online mortgage broking platform, HashChing says it is shaking up the home loans industry once again with a new GroupBuy solution. They claim the potential savings are huge by flipping the usual power dynamic of a bank and borrower. Customers join a group with similar lending requirements (such as refinancing an existing home loan), and participating banks and lenders bid against each other to win that group’s combined home loan portfolio.

With Australians paying an average 4.55 per cent discounted variable rate on owner-occupied properties, HashChing CEO Mandeep Sodhi said customers could stand to save at least $80,000 off their mortgages by refinancing through GroupBuy.

“We expect lenders to match or beat the interest rates that are currently being offered through HashChing partner mortgage brokers, which currently start from 3.59 per cent. Based on an average loan size of $500,000, borrowers can stand to save a significant amount of money.

“HashChing GroupBuy is a revolutionary and exciting new way for borrowers to tap into the collective bargaining power of a group, enabling them to get a better interest rate on their existing home loan using an online wizard that takes less than 10 minutes to complete, provided you have your paperwork ready. “For less than 10 minutes of your time, you could potentially save $80,000 over the life of your home loan,” said Mandeep Sodhi, CEO of HashChing. Jobs NSW, a government backed initiative that aims to make the NSW economy as competitive as possible, has recognised the innovation behind GroupBuy with a $100,000 funding grant.

GroupBuy is free and simple to use. Borrowers sign up through the dedicated GroupBuy portal on the HashChing website and confirm their interest in a particular campaign. Campaigns group borrowers with similar loan requirements together.

Campaigns will have strict eligibility criteria, such as refinance of owner-occupied properties only with a minimum borrowing of $500,000 per applicant and a minimum credit score.

Once each campaign is full, HashChing’s panel of lenders bid for the group of loans, giving the borrowers access to a range of low and below market offers. Borrowers are able to select the most appealing loan offer, and the chosen lender then gets in touch with each borrower separately to finalise the home loan.

Borrowers who drop out of the campaign at any point will be connected with a local partner broker, who can provide them with a personalised service for negotiating a better home loan rate at no cost.

HashChing will also use key learnings from the rollout of GroupBuy to create a deeper understanding of customer usage patterns – the end goal being to connect customers with brokers at the precise moment they need assistance, with enough information captured for broker to have a meaningful conversation. HashChing will initially conduct a GroupBuy Pilot for six weeks with four lender partners – Gateway Credit Union, Pepper Money, Switzer and MortgageEzy – and offer campaigns to consumers looking to refinance their home. Upon completion of the pilot HashChing will increase the participating lenders and consumer campaigns.

Gateway CEO, Paul Thomas, highlighted the synergy between the two organisations as a key driver for the partnership. “Partnering with fintechs such as HashChing is all about helping to create a more dynamic, innovative and competitive industry. Taking part in this group buying initiative is exciting because it allows us to help pioneer a unique customer experience. It’s the perfect way for us to further strengthen our commitment to fintech partnerships and differentiate from the big banks, while showcasing our benefits as a customer owned bank that always looks to empower the customer,” said Mr Thomas.

Aaron Milburn, Pepper Money’s director of sales & distribution, said: “Pepper Money is always looking for ways to maximise a customer’s access to finance. That’s why we partner with a variety of introducers, such as HashChing, who are using innovative methods like GroupBuy to increase a customer’s finance options.”

Peter James, CEO of Mortgage Ezy, said: “Mortgage Ezy is thrilled to partner with HashChing as a strong advocate for brokers. As one of the last truly independent non-banks in Australia, we relish the opportunity to continue to give the banks a run for their money.”

Marty Switzer, CEO of Switzer GroupBuy, said: “Mortgage stress is a stark reality for one in four mortgaged households, and there’s a strong likelihood of rates rising even further. A simple increase of half a per cent would boost the number of mortgage stressed households to a whopping one in three. As an industry, we need to be looking at ways we can relieve the financial pressure on over-stretched households. HashChing has taken this challenge by the horns with its innovative GroupBuy product, and I’m excited to be a part of it.

Since launching in August 2015, HashChing has received more than $10 billion worth of home loan applications, helped upwards of 18,000 customers find a better deal on their home loan, and boasts an expansive network of more than 600 verified brokers. “We are very pleased to be working with a dedicated group of lenders given the current discontent consumers feel towards the major lenders, especially during continual periods of out of cycle rate changes,” said Mr Sodhi. “For too long now, mortgage borrowers have felt powerless against the big four banks and other major financial institutions, who continue to hike up interest rates against a climate of high household debt and stagnate wage growth.

“HashChing GroupBuy puts the power back in their hands by having banks and lenders come to them and try to win their business. We believe this will be an incredibly satisfying and empowering experience, and we’re looking forward to making this publicly available in the near future.

ASIC questions legality of bank rate hikes

From The Adviser.

The corporate watchdog told a parliamentary hearing this week that the big banks could be in breach of the ASIC Act over the reasons given for hiking interest rates.

ASIC appeared before the House of Representatives Standing Committee on Economics yesterday (14 September) where chairman Greg Medcraft provided no opening remarks and instead launched straight into the inquiry.

Chairing the committee was David Coleman MP, who kicked off the questioning by raising the issue of recent rate hikes by the banks. He noted that some banks, in their public justifications for the out-of-cycle rate hikes, have named the regulatory impact but did not name any other factors.

Mr Coleman questioned if the interest rate increases were larger than could sensibly be justified by the regulatory impact.

He then asked ASIC chairman Greg Medcraft: “Would that concern you?”

“Yes, it would. I think what you are really saying is, are they profiteering on the announcement?” Mr Medcraft replied, before passing to ASIC deputy chair Peter Kell to elaborate.

“Yes, it certainly would concern us,” Mr Kell said. “It would go in effect to, I suppose, whether the public justification or explanation for the interest rate rise was actually inaccurate and perhaps false and misleading, and therefore perhaps in breach of the ASIC Act.”

The deputy chairman explained that ASIC is currently “looking at this issue” and will be working with the ACCC, which has been given a specific brief by Treasury to investigate the factors that have contributed to the recent interest rate setting.

“It is an issue we are concerned about,” Mr Kell said. “We will have to look at any particular statement carefully. I would also ask if the committee has any particular statements they have concerns about?”

CBA blames regulator for rate hikes

David Coleman MP took the opportunity to read from a 27 June press release issued by the Commonwealth Bank of Australia (CBA) which informed the market of home loan pricing changes. It stated: “To meet our regulatory requirements, variable interest-only home rates for owner-occupiers and investors will increase by 30 basis points.”

Mr Coleman said that there was “no wiggle room” in CBA’s statement, which made clear that regulatory requirements were the sole reason for the rate hike.

“CBA has very clearly put on the record that it is to meet the regulatory requirement,” he said.

“It is notable in this context that analysts who have looked at these rate rises have concluded that the rate rises will increase the profitability of the banks. Presumably, this is not the role of a regulatory change.”

Mr Coleman said that it is important that the industry is aware and that bank executives are aware that “the ACCC has powers to interrogate these matters very carefully”.

Back book repricing under scrutiny

APRA was grilled by the parliamentary inquiry earlier in the week, where Mr Coleman questioned whether CBA’s and other lenders’ back book IO repricing practices were “actually opportunistic changes” that had effectively used the APRA speed limits as excuses to garner profit.

He called on APRA chairman Wayne Byres to clarify whether lenders had put out “misleading” statements by using the APRA crackdown as reasoning for back book repricing.

Deflecting the question, Mr Byres said that APRA would wait to see what came out of inquiries by the ACCC and ASIC. He noted that ASIC would have “great interest” in the matter.

Rate hikes a result of regulation: APRA

From Australian Broker.

Banks would not have increased their investment and interest-only rates were it not for speed limits imposed by the Australian Prudential Regulation Authority (APRA), the regulator’s chairman Wayne Byres has said.

These statements come from a hearing held by the House of Representatives Standing Committee on Economics around APRA’s 2016 annual report held yesterday (13 September).

Committee chair David Coleman brought up comments by the Commonwealth Bank of Australia (CBA) which alleged that rates hikes were implemented “in line with what our regulators require”.

“Many banks make similar statements and we’ve been blamed for all sorts of things,” Byres said.

While banks have used higher rates to influence customer behaviour, APRA had been “deliberately silent” about the measures which could be used when it implemented these speed limits, he added.

Byres acknowledged that rate hikes were indeed linked to restrictions brought in by APRA.

“Based on what I know… the banks would not have made these interest rate changes if it were not for these regulatory initiatives.”

Coleman remained unsatisfied, pointing out that rate changes affected banks’ existing books despite speed limits only applying to new lending. He asked Byres as to whether these rate increases were a requirement rather than just a response to APRA’s restrictions. At first refusing to give a direct reply, Byres said bank statements linking rate hikes to regulatory measures were “vague and ambiguous”.

Coleman then expanded his question, pressing Byres about a hypothetical in which a bank makes a general move and links this to regulatory requirements despite being wholly unconnected.

“This is not ok,” Byres said.

However, he stressed that APRA was not to blame for any rate hikes, saying “a direct assertion that we made them put up interest rates is clearly not true”.

CBA Joins The New Loan Grab

From The Adviser.

The Commonwealth Bank has announced the availability of a $1,250 refinance rebate for “select applications” along with a series of rate changes.

In a broker note released 12 September, CBA advised brokers that the bank is offering a $1,250 rebate for “new external refinance investment and owner-occupied principal and interest home loans”. The rebate can be accessed via CBA’s home loan pricing tool.

ING DIRECT in late August acknowledged that its recent $1,000 refinance offer extended to customers had put brokers in an “uncomfortable predicament” as the offer was only available via the bank’s proprietary channel. However, head of distribution Mark Woolnough added that the bank does not have plans to extend the offer to the broker channel.

He said: “We never wanted to put you or your customer in that predicament where they could potentially question your honesty and integrity by not telling them.

“So, will we make it available to brokers? As it currently stands? No. But do we need to look at the way it is currently operated at the moment? Yes.”

Rate changes

In the same note, CBA announced a series of reductions to certain fixed rate loans. Effective immediately, four and five-year term fixed rate principal and interest owner-occupied home loans will both fall by 20 basis points to 4.19 per cent per annum (p.a.).

Additionally, fixed interest-only investment rates with four and five-year terms will fall by 10 and 20 basis points, respectively, to 4.99 per cent p.a.

All impacted loans fall under CBA’s mortgage advantage package (MAV).

The changes follow a spate of rate adjustments announced by ANZ, MyState and Suncorp this week.

ANZ increased its fixed rate two-year investor loans (with principal and interest repayments) by 31 basis points to 4.34 per cent p.a., while its two-year fixed resident investor loan with an interest-only repayment structure fell by 10 basis points to 4.64 per cent p.a.

Suncorp also reduced fixed rates on its two and three-year investment home package plus loans by 20 and 30 basis points, respectively. The new rate for both is 4.29 per cent p.a., provided that the loan is for more than $150,000 and the loan to value ratio (LVR) is less than 90 per cent.

Suncorp said that the changes to its “two most popular fixed rate products for investors” were “a reflection of recent reductions to fixed rate funding costs”.

More Mortgage Rate Cuts To Attract New Borrowers

More evidence of competition for lower risk new borrowers, including interest only mortgages.

From Australian Broker.

MyState Bank has announced a decrease in its two-year fixed home loan rates for new, owner-occupied home loans with an LVR equal to or below 80%, effective immediately.

MyState’s two-year fixed home rate for principal and interest lending has reduced by 30 basis points to 3.69% p.a. (comparison rate 5.01% p.a.), while the interest-only two-year fixed option has also reduced by 30 basis points to 3.89% p.a. (comparison rate 5.05% p.a.).

MyState group executive of broker distribution Huw Bough said the lower rates were part of the bank’s commitment to providing broker partners with competitive products and services so both could attract new customer groups and steadily grow their loan books.

 

Suncorp Cuts New Mortgage Rates

Suncorp has unveiled a number of discounts on its investor and owner occupier loan products in response to being awarded Bank of the Year – Fixed Rate Home Loan by CANSTAR.

Effective from today (12 September), the bank’s Investment Home Package Plus two and three year fixed rates will drop by 0.20% p.a. and 0.30% p.a. respectively, bringing both rates to 4.29% p.a.

The follow additional special offer discounts for new standard variable lending will also come into effect today:

Back to Basics LVR New Loan Amount Current new business interest rate Additional discount Special discounted rate
Owner-occupied ≤90%
(inclusive LMI)		 ≥$150,000 3.78% p.a. 0.10% p.a. 3.68% p.a.
90% – ≤95% (inclusive LMI) 4.03% p.a. 0.10% p.a. 3.93% p.a.

 

Back to Basics LVR New Loan Amount Current new business interest rate Additional discount Special discounted rate
Owner-occupied ≤90%
(inclusive LMI)		 ≥$150,000 3.89% p.a. 0.10% p.a. 3.79% p.a.
Owner-occupied
First Home Buyers		 ≤95% (inclusive LMI) ≥$150,000 3.89% p.a. 0.10% p.a. 3.79% p.a.

In addition to the fixed rate award, Suncorp also received a five star rating for two of its home loan products:

  • Bank to Basics Owner Occupied Construction Loan
  • Home Package Plus Owner Occupied Fixed Rate Loan

“The CANSTAR award and five star ratings are further confirmation that we are offering products that deliver value for our customers,” said Suncorp banking & wealth CEO David Carter.

“In June this year, we announced some changes to interest rates to give additional support to customers in the owner-occupied market, and from today I am pleased to say we will go further. This is a reflection of recent reductions to fixed rate funding costs, allowing us to lower our two most popular fixed rate loan products for investors.”

The rate changes and special offers come into effect in what is traditionally a busy season for home buyers, he added.

“Customers who take advantage of these offers will also have the convenience of being able to access more than 3,300 fee-free ATM’s, as part of Suncorp’s new partnership with the rediATM network.”

 

The Oldest Trick In The Book

The focus on power prices and the behaviour of the power companies where households end up on higher rates, draws attention to the oldest trick in the book – offer attractive rates for new business, but rely on consumer apathy/confusion or create hurdles to continue to get the best prices. Companies seeking to maximise their returns from hapless consumers.

The same is true in financial services, where both on the mortgage and deposit side of the ledger, it is easy for households to drift to rates which are not the best available.  The banks rely on this to protect their margins and profits, just like the power companies.

Now of course the power companies, under duress, are going to write to some consumers to help them find better deals. So why not the banks too?

In the past year lenders repriced their mortgage books aggressively, to increase margins, and imposed out of cycle rate hikes on all borrowers.  The trajectory of those varied between investor and owner occupied loans.

This chart, using data from the RBA tracks the rates on offer and we overlay the cash rate on the second axis.   They have built quite a war chest!

But in fact, the best new attractor rates are more than 100 basis points lower for some low risk customers, but only for new ones. It is harder for existing customers to get better rates, (but it is still worth being proactive and asking). There are costs involved in switching, and work to be done to find the deals out there.

Philip Lowe commented recently on how competitive dynamics drove lenders to take more risk:

One might ask why lenders themselves did not do more to constrain their activities in these areas, given the earlier trends were adding to risk in the overall system. When everything is going well, it appears that any single institution has difficulty pulling back. Each worries about their competitive position and about the market reaction. Individual institutions are also more likely to focus on their own risks, rather than the risks to the system as a whole.

We suspect the same argument would be mounted internally – replace risk, with profit – against the idea of helping customers to optimise the returns from their deposits and reduce their mortgage rates. But we think this is precisely where differentiation can and should emerge.

If a bank was really interested in customer outcomes, they would be proactive in suggesting products with better rates, rather than relying on inertia. Actually this could become a significant point of differentiation, and would be a touchstone for brand improvement and cultural change.

Imagine using the information systems inside the bank to analyse existing product footprints and proactively suggest better alternatives. No better way to build customer trust a loyalty, something which is sadly missing in the current profit at all cost drive approach. The truth is that long term shareholder value is actually aligned to building true customer loyalty. Yet this is largely ignored at the moment.

What about a proactive financial health check, where the bank and customer could jointly discuss options and alternatives?  This is even something a robo-banker might do.

Time for someone to step out from the pack.