Buyers shop around as banks discount home loans

Banks are increasing the discounts offered on standard variable home loans in an attempt to spark activity in the mortgage market without resorting to an all-out price war.

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.