2 MarIs It Worth Staying Loyal to Your Bank?

Gone are the days where loyalty is well-rewarded, especially when it comes to banks. It’s common to see advertisements offering new customers special discounts and deals on financial products. Yet, long-standing customers don’t receive the same rewards for their loyalty.  Recent changes to property investment loans which impact existing customers are one such case in point.

Property investment loans

In the second week of February, the Australian Prudential and Regulation Authority (APRA) issued a warning to Australian banks about the increase in lending for the purpose of property investment across the country.

Throughout 2016, APRA tried to slow the rate of investor lending across the country. APRA set annual lending growth limits and benchmarks that the banks were forced to adhere to. The result led most banks to increase interest rates for investment home loans in an effort to slow investor demand.

In response to APRA’s announcement, the Commonwealth Bank (CBA) has stopped accepting refinancing applications for investment mortgages beginning mid-February. The CBA issued correspondence to mortgage brokers on the 8th February to advise them that the suspension would take effect on the following Monday.

Of course, the CBA promised to honour and process existing loan applications that were submitted before the February 13 cut-off date, but new applications will be denied, even from existing customers.

CommBank also announced that investors would also face an interest rate hike of 0.12% on interest only home loans that would take effect on the 3rd April.

In a similar move, Bankwest also made a move to make changes to eligibility criteria for investors applying for investment home loans. Bankwest customers using negative gearing tax benefits would no longer be able to use those losses in applications for investment loans, effectively reducing the borrowing capacity for those customers.

Also in response to APRA’s warning, AMP announced it would stop accepting new investor refinance applications. In the same announcement, AMP also made it clear that investors would face an interest rate rise of .30% for interest only property investment loans, along with limiting investors to a 70% loan-to-value ratio (LVR), increase of the previous 90% LVR.

Yet not all banks have responded the same way. There are still some banks in the market encouraging applications from property investors.

ANZ Bank recently announced to mortgage brokers across the country that they would offer a cash rebate of $1,200 as an incentive to customers for submitting applications for new residential investment loans.

Likewise, BankSA announced a cash rebate of $1,500 to customers for submitting applications for new residential investment loans received before 31st May 2017.

What does this mean for investors?

While some banks and financial institutions in the Australian market may be restricting applications from investors or penalizing existing customers by raising interest rates, there are certainly some banks out there willing to negotiate for great discounts.

Since the beginning of December 2016, 39 of the 84 lenders in Australia have increased variable interest rates on property investment loans. Plenty of other banks made their move on investment interest rates earlier in the year.  Overall, around 90% of banks charge higher interest rates on investment loans than the rates charged for an owner-occupied loan.

Yet research indicates that customers are still able to obtain competitive interest rates and loan terms by shopping around. A good mortgage broker has access to a broad panel of lenders and financial institutions, so it’s possible to discover deals you might otherwise have missed by staying with your existing bank.

In light of changes being made in the investment mortgage market, it makes sense to ditch the loyalty to one bank and start searching for the right home loan to suit your investment goals.

Happy hunting in an exciting market!

Rick Nieuwenhoven
e: rick@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

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