Rising gap between interest-only and interest and principal home loans: Canstar
The Reserve Bank of Australia has kept its cash rate at a record low of 1.5% since last August 2016, but tighter regulatory measures, especially around the investment market, have forced lenders to go for out of cycle rates and rein in investor lending, says a loan comparison website.
RBA’s recent bulletin noted that in the aftermath of the GFC, a focus on more financial resilience has meant that Australian banks have had to increase capital requirements by strengthening their capital position, primarily through an increase in common equity.
This has impacted banks’ return on equity, encouraging them to tweak their lending activities, Canstar said.
Banks have also repriced their loans, mostly housing loans, in response to higher capital requirements and also to rein-in interest-only lending because of the risks from high household debt, which the RBA has stated on quite a few occasions this year.
Canstar came out with a monthly summary of mortgage rates split according to interest-only and principal and interest only loans.
It reported that the average rate for the basic variable interest-only loan was 4.46% and the product had seen six increases in the recent past and no cuts.
All the assumption in the following charts have been on a loan amount of $350,000 and a loan-to-value ratio of 80%.
The figures reveal the crackdown on interest-only loans for investment properties is even higher, with the average for the basic variate rate loan sitting at 4.87%, 41 basis points higher than only the interest-only loan on an owner occupied property.
Recently, all the major banks raised their rates for interest-only loans.
Meanwhile, banks and lenders have been more rewarding of principal-and-interest only loans, with the average as at July 3 being 4.26%, according to Canstar.
Also, there have been three rate cuts and five increases compared to none for the interest-only segment.
