CBA set to cut investor interest rates

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A second major Australian lender is set to make life a little bit easier for investors.

Fairfax Media outlets yesterday reported that the Commonwealth Bank of Australia (CBA) is set announce a number of changes to its loan offering in an attempt to attract customers.

According to the Fairfax report, CBA will on Monday announce 0.4% cuts to interest rates on its “extra home loan" and "extra investment home loan" products.

After the cuts, the loans will carry interest rates of 4.21% and 4.24% respectively.

According to Fairfax, CBA is also set to slash the minimum loan amount for "extra home loan" from $150,000 to $10,000. The product is targeted at existing borrowers who are planning renovations or building work.

While the CBA’s move may mean existing borrowers get to keep a little extra money in their pockets after each repayment, Ian Hosking Richards, chief executive officer of Rocket Property Group, said the moves aren’t going to see a rush of new investors looking for finance.

“One of the issues we’ve been finding lately and the main challenge lately has been the serviceability, not the interest rates. You can drop the interest rate to 2%, but if people can’t service a loan then they’re not going to be able to benefit from it,” Hosking Richards told Your Investment Property.

“If the easing of interest rate hikes for investors are matched by an easing of serviceability requirements, then that’s what’s going to really make the difference because that’s what people are really struggling with,” Hosking Richards said.

Hosking Richards said the strict serviceability requirements pose particular issues for those looking to buy off the plan and while he has seen no signs of lenders easing in those areas he does believe it will happen.

“I haven’t seen any yet, but at the end of the day the banks are a business and they like to make lots of money and if they’re not lending money then they’re not doing business and it doesn’t make sense for them to knock back perfectly good business over an extended period of time.

“At the moment I think they’re doing it because if they don’t APRA’s going to come down on them like a town of bricks.”

CBA’s move comes less than a month after fellow major lender Westpac announced that it would accept smaller deposits from investors, moving its minimum loan to value ratio (LVR) from 80% to 90%.

At the time of that decision Philippe Brach, chief executive officer of Multifocus Properties & Finance, said it came as little surprise as Westpac could stand to lose business for only so long.

“It was also foreseen that as soon as they got things under control that they would go back [to 90%] because at the end of the day the banks need to make money and by having an LVR at 80% there’s a big chunk of business that goes off to other lenders like CBA that are doing 90%,” Brach told Your Investment Property.

The announcement from the CBA came just a day after Australian Bureau of Statistics figures revealed the value of new loans written for investors fell to an almost two-year low during April.

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