Australia's mortgage war is back

Photo: Cameron Spencer/ Getty Images.

Commonwealth Bank of Australia, the nation’s largest lender, is planning to cut investment property interest rates and slash minimum loans by more than 90 per cent, triggering claims by rivals of a price war between property investment lenders.

It comes as more than 160 home loan products – both owner-occupied and investor – slip below the benchmark 4 per cent, encouraging property buyers to shop around for best rates.

ME Bank, which is owned by 29 superannuation funds, today announced rates cut of up 40 basis points to 4.24 per cent on investor property loans with a deposit of 20 per cent or less.

CBA, which accounts for one in four property loans, is cutting rates on its “extra home loan” and “extra investment home loan” products by more than 40 basis points to 4.24 per cent and 4.51 respectively. The bank’s standard variable rate is 5.35 per cent.

The loans – which can be principal and interest and interest only – are aimed at owner-occupied, investment housing, off the plan and building and construction.

It is cutting the minimum loan amount on its top-up “extra home loan” – which is aimed at retaining borrowers planning building or renovations – from $150,000 to $10,000.

It is expected to be announced next Monday.

Long-term property investment growth continues to outpace owner-occupier loans despite 18 months of controls intended to slow the momentum of runaway prices in Sydney and Melbourne.

“There is a mortgage war out there,” warns Martin North principal of Digital Finance Analytics, a consultancy for major banks and finance service providers.

Lenders under the regulatory 10 per cent cap on investment growth are launching a range of new products, offering discretionary discounts and building share amongst investors.

Mr North said: “The banks are trying to get smarter in the approach to the market, more selective, targeted discounts, and looking for undiscovered niches. From a financial stability point of view though, they are repricing more profitable older loans into newer less profitable ones. This cannot go on for ever.”

In line with other products

CBA, which is believed to be well below Australian Prudential Regulation Authority’s speed limit, downplayed the changes, claiming it was bringing the products into line with other offerings.

A bank spokesman said: “We constantly review and monitor our its suite of home loan products and services to ensure we are maintaining our prudent lending standards and meeting our customers’ financial needs. The changes to this product bring it in line with our other home loan products.”

Lenders are targeting the lucrative property investment market with special deals, discounts and lower rates in a bid to build market share and boost profits to offset downturn in business banking.

There was nearly a two-fold increase in discounts on loan to investors in the four months to May, compared to just over 60 per cent change in owner-occupied loans, according to analysis.

The Reserve Bank of Australia, which five weeks ago cut the official cash to 1.75 per cent, claims the rebound in investment property will not last because of an expected over-supply in apartments, particularly in the central business districts of Brisbane, Sydney and Melbourne.

But industry practitioners, such as mortgage brokers, claim the decrease has sparked renewed investment property interest, particularly amongst retirees, seeking capital growth and higher income than on offer from fixed interest rates.

Banks claim there has been a sharp uptick in loan applications because of falling interest rates, less concern about negative gearing changes, no budget changes and worse returns from alternative investments.

Commonwealth Bank and BankWest processed $331 billion of loans in the 12 months to end of last December, according to annual results.

This story first appeared in The Australian Financial Review. Read it here or follow the Financial Review on Facebook.

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