Banks cut interest-only rates

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On Tuesday, the Reserve Bank of Australia (RBA) announced it was keeping the cash rate on hold at a record low of 1.5%. In contrast, banks have been making significant cuts to interest-only rates across the board.

Last Friday, Commonwealth Bank of Australia (CBA), cut its two-year fixed interest-only investor rate, from 4.84% to 4.34%, a massive drop of 50 basis points.   

Rival Westpac slashed the same loan type by 14 basis points, from 4.79% to 4.65%.

Meanwhile, Westpac-owned St George cut its two-year fixed-rate investment property loan marginally by -0.04% to 4.60%, and Aussie Home Loans cut its one-year fixed IQ Basic Investment Loan by -0.25% to 4.24%.

Other smaller lenders, such as ING, Mortgage House, and Virgin Money have also dropped some interest-only rates over the previous month.

Sally Tindall, money editor at RateCity, said the tide was turning for interest-only lending.

“It’s been a tough year for home owners looking for interest-only lending who have had to endure at least one, if not multiple, out-of-cycle rate hikes,” she said. “This is the first sign of a reprieve.”

Tindall said these rate cuts suggest that banks are looking to accept more interest-only loans on their books after overshooting on the Australian Prudential Regulation Authority’s (APRA) 30% cap on new interest-only lending.

“The latest APRA data shows the number of new interest-only loans from authorised deposit-taking institutions dropped from 36.26 per cent in March 2017 to 16.91 per cent in September 2017,” she said.

“Interestingly, CBA has reversed their 2017 rate hikes on their two-year fixed interest-only loan, so it’s now the same rate as it was in February of last year. Those lenders who have room to move in their interest-only lending limits are likely to join in on these interest-only rate cuts.”


Related Stories:
ANZ: Reserve Bank Will Hike Rates In 2018
Interest Rate Hikes Coming Sooner Rather Than Later


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