The major banks are intent on placing heavier burdens on property investors with interest-only loans, warn senior bankers. They recently told The Australian that the gap between the interest rates charged to property investors and owner-occupiers would continue to diverge.
One of the most notable features from last week’s round of interest-rate increases was the industry-wide switch to differential pricing, with investors paying a higher rate than owner-occupiers, and a further premium added if investors are only paying interest.
Big and small banks are moving in this direction because of “imminent regulatory moves on two fronts,” according to Richard Gluyas, business correspondent of The Australian. First, there’s the very strong likelihood that APRA will once again crackdown on investor lending in an attempt to rein in considerable house-price growth in Sydney and Melbourne. Second, there’s a global move under the Basel IV process to impose higher risk-weights on interest-only home loans—a directive Aussie banks are willing to follow.
“The message from last week is that it’s best not to be over-leveraged, and it’s also better to be paying interest and principal if you’re an owner-occupier, but particularly if you’re an investor,” a senior banker said. “The gaps that have opened up are only going to get wider.”
Last Friday, Commonwealth Bank of Australia (CBA) and Australia and New Zealand Banking Group (ANZ) closed the latest round of rate increases for the majors that was kicked off by National Australia Bank on 16 March.
CBA hiked its standard variable rate for owner-occupiers who’re repaying principal and interest fees by three basis points to 5.25%, the lowest among the majors. ANZ left its counterpart rate unchanged.
Investors weren’t quite so lucky: CBA hiked its variable rate for interest-only investment loans by 26 basis points to 5.94%. On a similar note, ANZ hiked its variable rate for interest-only investment loans by 11 basis points to 5.96%.
Across the industry, investors repaying principal and interest now pay an interest rate about 60 basis points greater than owner-occupiers who’re also repaying principal and interest, according to Gluyas. A senior banker projected this gap would soon balloon to 80-100 basis points.
“The segmented pricing shows the industry preference for less risky owner-occupier home lending. The premium charged to investors is partly a reflection of higher risk, with customers more willing to sacrifice an investor property in tough times,” said Gluyas.
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