Buyers shop around as banks discount home loans
With housing credit growing by a record-low annual pace of just 4.4 per cent, lenders are offering up to 1 percentage point off their home loan rates as they try to win business from rivals.
The discounting comes as investors face growing expectations that interest rates have hit the bottom of the current easing cycle, after stronger than expected jobs data for last month.
Although most of the scrutiny of bank rates is on their standard variable mortgage rates, most customers receive a substantial discount on their mortgages.
The big four banks, which have a stranglehold on the home loan market, were advertising discounts of up to 0.85 per cent off their standard variable rates, which are between 6.38 and 6.51 per cent, comparison site RateCity said.
An analyst at financial researcher Canstar, Mitchell Watson, said that, in the past month, National Australia Bank, Macquarie Bank and building society IMB had all increased the discount offered on home loan packages. Westpac also this week said it would offer a 1 percentage point discount on package deals for customers borrowing more than $500,000.
"Our data would suggest that you can achieve up to 1.2 percentage points off the standard variable rate, which is being offered by Citibank," Mr Watson said. To be eligible for the lower rates customers generally have to borrow a minimum amount, which ranges between $250,000 and $500,000.
Sydney broker Jeremy Fisher said banks were now "risk-rating" their borrowers, offering clients who borrow a larger sum or were able to borrow less than 80 per cent of the price of their home a sizeable discount on their mortgage rate.
"They are segmenting that in their interest rate quoting now, so from the bank's view, a customer that has a large deposit is going to get a better rate now and that wouldn't have happened 12 months ago," Mr Fisher said.
Kirsty Lamont, of comparison site Mozo, said three of the big four banks surveyed by a mystery shopper recently were willing to offer their potential client discounts over and above already reduced packages.
"ANZ and Westpac both offered bigger discounts than their standard packaged rate discount, while NAB went as far to say they would 'beat any rate offered by the customer's existing big-four bank'," she said.
At the same time, more borrowers are switching to fixed-rate loans.
Frequently Asked Questions about this Article…
Banks are boosting discounts on standard variable home loans to spark activity in a slow mortgage market. With housing credit growth at a record-low annual pace of about 4.4%, lenders are offering bigger reductions—up to around 1 percentage point in some cases—to attract borrowers without starting an all-out price war.
Discounts vary by lender and package. The big four have advertised discounts up to 0.85% off standard variable rates (which sit between about 6.38% and 6.51%), Westpac has offered 1.0 percentage point off certain package deals over $500,000, and Canstar data shows Citibank advertising up to about 1.2% off the standard variable rate for eligible customers.
According to the article, National Australia Bank (NAB), Macquarie Bank and building society IMB have all increased discounts on home loan packages in the past month. Westpac also announced a 1 percentage point discount on some package deals, and mystery-shopper results indicated ANZ and Westpac were willing to offer bigger discounts than their standard packaged rates while NAB said it would 'beat any rate offered by the customer's existing big-four bank.'
Yes. The article says customers generally have to borrow a minimum amount to qualify for the lower rates, with minimums typically ranging between $250,000 and $500,000 depending on the lender and deal.
Banks are segmenting borrowers by perceived risk. Those who borrow larger sums or have larger deposits—generally meaning a loan-to-value ratio below 80%—are being offered bigger discounts. In other words, borrowers with a large deposit or lower LVR are more likely to get a sizeable rate reduction.
Comparison sites and brokers featured in the article note lenders are willing to negotiate beyond advertised package discounts. RateCity supplied data on advertised discounts and standard rates, Mozo's mystery shopper found big banks offering extra discounts, and a Sydney broker explained that banks are now risk‑rating customers and offering better rates to lower‑risk borrowers.
Yes. The article notes that, at the same time as lenders increase discounts on variable rates, more borrowers are switching to fixed‑rate loans. It does not provide further detail on the scale, but it highlights a trend toward fixed-rate switching.
Standard variable mortgage rates reported in the article are between about 6.38% and 6.51%. With advertised discounts (for example up to 0.85% from the big four or up to 1.2% from Citibank in some cases), eligible borrowers could see considerably lower effective rates depending on the lender, package and eligibility requirements.
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