In a marked deviation from customary banking practice, one bank has undertaken measures to level the playing field for owner-occupiers in terms of mortgage rates. This comes at a time when Westpac, a leading Australian bank, is revising down the fixed rates on select loan offerings.
The National Australia Bank (NAB) has done away with the existing tiered system which levied different interest rates based on the size of the deposits for its basic variable loan. Instead, it now charges a flat rate of 6.49 per cent, irrespective of the deposit size. Essentially, this means owners who could only afford a deposit of less than 20 per cent would see their mortgage interest rate cut by 0.70 percentage points, lowering the rate from 7.19 per cent to the new standard of 6.49 per cent.
RateCity’s research director, Sally Tindall, labels this a breakthrough move from Australia’s third-largest home loan lender. Breaking away from the long-standing banking tradition of risk-based pricing, NAB’s new strategy could prove appealing to owner-occupiers with smaller deposit sizes, many of whom are first-time home buyers grappling with getting a foot on the property ladder.
In contrast, Westpac announced, via an email to its customers, that it has reduced its two-year fixed rates for Investment Property Loans. Additionally, it has boosted its Flexi First Home Loan by 0.10 percentage points, while simultaneously cutting the two year introductory discount and promotional discount.
The revised rate for borrowers with more than a 30 per cent deposit now stands at 6.09 per cent for two years, before subsequently rising to 6.49 per cent. However, those with a 20 per cent deposit will pay an interest rate of 6.19 per cent for the first two years, after which it will remain steady at 6.19 per cent.
Even though these changes have no effect on the base rate of the loan, they imply that none of the big four banks now provide mortgage holders with loans that have an interest rate below six per cent.
The decision by Westpac has been touted as a strategic withdrawal from the intense competition in the home loan market. Tindall sees this move as a closure for the variable rates under 6 per cent by the big four banks. It appears unlikely that any of the big four banks will offer an advertised variable rate under 6 per cent until the Reserve Bank of Australia (RBA) decides to cut the cash rate.
Further, Tindall characterises Westpac’s move to increase the rate on its basic variable loan as “swimming with the tide”, while commenting that NAB is “going against it” by lowering this rate for owner-occupiers with smaller deposits.