Discount mortgages gain ground as One Big Switch passes 10,000

As the One Big Switch campaign passes 10,000 subscribers, new Mortgage Choice research reveals the popularity of ongoing discount home loans jumped 6% in July.

Ongoing discount home loans – where the interest rate is discounted over the entire loan term usually in return for an annual fee – reached an unprecedented 38.6% of approvals in July, with the number of these loans rising in all states.

Mortgage Choice spokeswoman Kristy Sheppard says ongoing discount mortgages could rise to 50% of all loan approvals over the coming months.

“With the cash rate on hold for the longest period since November 2006 to August 2007, this month we may see a reduction in fixed rate appetite and continued growing hunger for ongoing discount rate home loans,” she says.

Sheppard says the popularity of ongoing discount home loans is unsurprising given the array of deals on the table as lenders vie for greater market share.

“Upcoming borrowers will be adding up the value they place on guaranteed steady minimum repayments against the chance of a longer stretch of steady interest rates.”

The One Big Switch campaign, a commercial venture launched by former Rudd advisor Lachlan Harris and consumer group Choice, allows those who sign up to be approached by a panel of lenders offering them the opportunity to switch to a cheaper mortgage.

The growing attractiveness of ongoing discount rate mortgages comes as banks cop a spray from comparison website Mozo for treating small businesses such as estate agents as second-class citizens when it comes to providing them with banking products.

Mozo research reveals an average 0.56% difference between the best interest rates on offer to personal savings account customers and business savings account customers.

All of the big four banks (Westpac, NAB, Commenwealth and ANZ) and a handful of others impose tiered rates on business savers where balances under a certain level earn no interest at all.

Nearly half of the banks surveyed, including NAB, Westpac, St George, BankWest and Citibank, offer bonus interest rates to personal customers but not to business customers. Standard rates are also often lower for business customers.

Despite expectation of a fixed rate demand starting to trend down, during July demand for fixed rate products continued to rise, accounting for 13.3% of all mortgages approved by Mortgage Choice.

The appeal of fixed-rate loans diverged more widely across the country than in previous months.

Fixed-rate approvals increased in NSW and Queensland but fell in South Australia, Western Australian and Victoria.

The popularity of ongoing discount home loans continued to rise in July, increasing by more than 6% to an unprecedented 38.6%, with approvals rising in all states.

Demand for line of credit home loans, often more popular with investors, fell slightly to 4.7% of approvals and below the 12 month average

Introductory rate or honeymoon loans fell 1.6% to 3.3%.

Source: Mortgage Choice

The RBA decision to leave rates on hold at 4.75% in August was welcomed by many in the industry.

"The RBA has accurately assessed the Australian economy, including the property market, and left rates on hold,” says Real Estate Institute of Australia acting president Pamela Bennett.

CBA chief economist Michael Blythe says attention will now turn to the quarterly Statement on Monetary Policy, due on Friday, August 5.

“This statement will allow policy makers to flesh out the thinking behind the August decision and will also provide updated forecasts for growth and inflation,” he says.