Borrowers target discount rates

By Terry Ryder, 7th October 2011

Cut-rate variable home loans and fixed-term loans are growing strongly, as the take-up of basic variable and standard variable home loans falls further.

Discount rate mortgages, where the variable rate is reduced over the loan term (usually in return for an annual fee), accounted for nearly half of September’s approvals for mortgage broker Mortgage Choice.

Fixed rates also experienced increased borrower appetite, accounting for 17% of approvals.

“The real growth story at the moment is ongoing discount rates,” company spokesperson Kristy Sheppard says. “In September this product as a proportion of all Mortgage Choice’s new home loan approvals rose for the 10th successive month, to a high of 45%.

“We’ve almost reached the point where one in two new borrowers is seeking the combined benefit of affordability and flexibility above and beyond any other loan type advantages.

“I expect the trend to continue, bolstered by industry talk swinging away from cash rate hikes to ongoing stability or cuts.”

Demand for standard variable and basic variable rate home loans fell in September, to 16% and 15% of approvals, as did that for introductory rate loans, to 2%. Line of credit experienced a slight growth in demand, to 5%.


A survey by Loan Market suggests high-net-worth individuals - people with assets in excess of $1 million or households with income above six figures - have been the main beneficiaries of the price war among the major banks.

Loan Market chief operating officer Dean Rushton says a poll of 250 mortgage brokers found 48% thought wealthy clients had been offered the best deals while 29% believed investors were most favoured.

"The current price war between the major banks may have the perception of helping all customers equally, but the reality is that the greatest opportunities exist for clients who have a high net worth," he says.

The strong asset base and high incomes of these clients made them more attractive to lenders as they presented less risk and higher returns.

"There is no question that those who borrow more have more room to negotiate on their rates," he says.

Rushton says investors are finding it far easier to obtain finance than self-employed borrowers in the current lending environment.

"Banks are certainly looking at investors as an attractive borrower with established equity whereas credit and loan value ratios remain tight for self-employed borrowers," he says.

ENDS

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