Online mortgage price war heats up

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A new online mortgage provider has hit the Australian home loan market with an aggressively-low priced interest rate.

Mortgage provider loans.com.au is the latest entrant to the online mortgage price war, marking its debut by offering the lowest online standard variable rate in the market.

 The provider, which is funded by FirstMac Ltd., is offering a new variable rate of 6.69% pa with a special 0.11% discount for new loans during the month of June – making it 6.58% pa. The 0.11% discount applies for the life of the loan.

FirstMac managing director Kim Cannon indicated that competitive rates are not the only weapon in the online provider’s arsenal.

“We’re a serious competitor ready to meet the major lenders head on in providing Australian borrowers with greater choice, lower rates and excellent features on their home loan.”

NAB’s internet banking business UBank also recently announced its own discounted standard variable rate mortgage at 6.59% for mortgages sold online.

Both offers are more than a full percentage point below the current standard variable mortgage rates of most banks and are expected to trigger a response from the other major banks.

Westpac’s current offering is 7.86% - the highest in the market, while CBA and ANZ are coming in at 7.81% and 7.8% respectively.

By foregoing costly infrastructure such as a branch network, the online mortgage market can afford to offer discounted loan prices to borrowers.

The low rates follow aggressive advertising pitches by the major banks in recent months that have led analysts to predict a price war.

Loan.com.au contends its presence in the market will create greater stability, allowing borrowers to emerge as “victors from industry skirmishes”.

“Variable interest rates have been kept artificially low to entice borrowers through short-term incentives. Loans.com.au will not use any covert tactics like this. Our loans will track the official RBA cash rate for the first five years. They will only move if the RBA rate moves and the rate movement will match the RBA’s,” it said in a statement.

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