Most interest-only and investor loans from the big four banks are cheaper than a year ago despite a series of rate hikes and a regulator crackdown aimed at cooling the housing market.
Banks are being forced to tighten their lending standards amid booming house prices under a new policy unveiled by the regulator, the Australian Prudential Regulation Authority (APRA) last month. In the regulator’s sights are loans to property investors and interest-only loans, which the regulator says puts people at risk of “payment shock” when the loans revert to principal and interest.
But data collected by research group Canstar shows that, despite a series of rate hikes from the banks in response to the regulatory change, interest rates on many interest-only and investor home loans are still significantly lower across the big four banks compared with a year ago.
This includes some loans that apply to new borrowers and are designed to dampen demand in the housing market.
Commonwealth Bank’s standard variable interest rate for customers taking out an interest-only loan as an owner-occupier is 5.22 per cent, compared with 5.6 per cent in April last year -0.38 per cent lower.
While National Australia Bank’s one-year fixed interest-only rate for owner occupies is currently 3.99 per cent – 0.60 per cent lower than it was in April 2016.
The period takes into account two official rate cuts by the Reserve Bank of Australia in May and August last year. The data assumes the borrower has a 20 per cent deposit and buying a $350,000 property. Weak measures
Economist Saul Eslake said the data showed the weakness of macroprudential measures designed to cool the market compared with changes to government policy such as abolishing tax incentives for property investors or adjusting the official RBA cash rate.
“The impact of recent supervisory measures has been overwhelmed by the impact of the two rate cuts in May and August last year,” he said.
“But doing the third best thing is better than doing nothing at all.”
Chris Richardson, partner at Deloitte Access Economics, said it showed that money remained “incredibly cheap” in Australia and that more may need to be done to cool the market.
“At some stage you’re going to have to switch to different tools,” he said.
In the minutes of its April meeting, the RBA said the Council of Financial Regulators regulators could clamp down on home loans and “consider further measures if needed” to maintain financial stability.
The RBA also appeared to take aim at “particular features of the tax system,” including negative gearing, which the Turnbull government has all but ruled out changing in the lead up to the May budget despite its influence on increasing loans to investors. Banks move
Westpac lifted its interest rates on fixed-rate, interest-only home loans on Monday, signalling the move was in response to regulatory changes.
It follows similar rate hikes by the Commonwealth Bank on Friday.
However several of the big four banks are still offering lower interest rates compared with last year on some of their fixed rate loans.
NAB’s three-year interest-only investor loan rate is 4.39 per cent compared with 3.59 a year ago. The same loan at ANZ is 4.54, compared with 4.69 in April 2016.
Variable interest rates for property investors looking to pay interest-only have risen only modestly across ANZ, NAB and Westpac, according to Canstar, with CBA still offering a 0.19 per cent discount year-on-year.
The new lending rules, announced by APRA last month, mean that interest-only lending can account for no more than 30 per cent of a banks’ new mortgage lending, compared with nearly 40 per cent of outstanding home loans currently.
This has prompted a series of rate hikes by the banks targeting investor and interest-only loans.
Steve Mickenbecker, head of research, product and strategy at Canstar, said the data showed that the latest rate hikes had not yet gained ground on the official cuts of last year.
“Over the period there has been a 0.5 per cent reduction in the RBA cash rate. If you look at the various rates here, a number of them have gone up but a lot of that clawing back has occurred in the last few months,” he said.
“Compared to the 0.5 per cent reduction there has not been a lot handed back.”