Investors who were shut out of the housing market by a crackdown on interest-only loans could soon be back in force, with half the Big Four banks dropping rates and reopening the floodgates.
In the first big sign of a reprieve for investors, both the Commonwealth Bank and Westpac Banking Corporation have reversed moves made against their interest-only portfolios, with CommBank slashing its two-year fixed interest only investor rate by 50 basis points on Friday, and Westpac dropping its version by 14 basis points.
This as the Reserve Bank of Australia board on Tuesday kept its cash rate target on hold at 1.5 per cent – a move that was widely expected across the finance and housing community.
According to RateCity, a slew of smaller lenders had already dropped several interest-only rates in the past four weeks, including ING, St George, Aussie Home Loans, Mortgage House and Virgin Money.
RateCity money editor Sally Tindall said the rate cuts showed the banks were looking to take on more interest-only loans.
“The latest APRA data shows the number of new interest only loans from authorised deposit-taking institutions dropped from 36.26 per cent in March 2017 to 16.91 per cent in September 2017.”
In CBA’s case the two-year fixed interest-only loan was now the same rate as it was in February last year, she said. “Those lenders who have room to move in their interest-only lending limits are likely to join in on these interest-only rate cuts.”
“The removal of the cap could put downward pressure on mortgage rates for investors and increase competition among lenders,” Mr Kolenda said.
Finder.com.au insights manager Graham Cooke warned Australia’s household debt to income ratio was one of the highest in the world.
“If it exceeds the 200 per cent mark, this could be a real hurdle for many Australians. If the RBA does raise the cash rate later this year, some Australians may lose grip of their repayments, particularly those who are already struggling to make the minimum repayment.”
According to finder.com.au, half of all experts it surveyed believed the RBA would not move on rates until 2019 while a third believed the next rise would come in November this year.
INTEREST-ONLY FIXED RATE CUTS:
CBA: Investment home loan 2-year fixed
Old rate: 4.84 per cent
New rate: 4.34 per cent
Change: -0.50 percentage points
WESTPAC: Fixed rate investment property loan 2-years
Old rate 4.79 per cent
New rate 4.65 per cent
Change: -0.14 percentage points
ST GEORGE: Fixed rate investment property loan 2-years
Old rate 4.64 per cent
New rate 4.60 per cent
Change: -0.04 percentage points
AUSSIE: IQ Basic Investment Loan Fixed 1-year
Old rate 4.49 per cent
New rate 4.24 per cent
Change: -0.25 percentage points
Source: Sophie Foster, 6 March 2018