BankWest, a subsidiary of Commonwealth Bank of Australia, will today announce a 76 basis point interest rate rise for principal and interest home buyers, the latest twist in lenders' attempts to slow borrowing and lower risk of bad debt on loan books as market sentiment sours.
The bank is creating a new category of low deposit lenders for those with less than 5 per cent deposit by raising rates to 5.29 per cent, up from 4.53 per cent. The new rate is inclusive of expensive lenders' mortgage insurance. The comparative rate, which takes into account all fees and charges, will rise from 4.94 per cent to 5.69 per cent.
For a $1 million home buyer with a 30-year, principal and interest $950,000 loan, the new rate of 5.29 per cent will mean an increase in monthly payments of $439 to $5269, according to analysis by finder.com, which monitors fees and charges of financial service products.
"The bank takes a balanced approach to product and pricing changes, and we are mindful of our broader obligations as a responsible lender," a bank spokesman said. "It reviews products and pricing on an ongoing basis with the aim of balancing the needs of our customers, shareholders," the spokesman said.
The higher rates apply to higher loan-to-value owner-occupied, principal and interest borrowers, which until now have largely avoided big increases as lenders focused on interest-only.
Many lenders, including Westpac and Australia and New Zealand Banking Group, are lowering rates for owner occupier principal and interest borrowers, who pay down the loan principal in addition to interest. They are also providing incentives for switches from interest-only, such as waiving new loan fees.
Reserve Bank of Australia and prudential regulators are publicly pressuring lenders because of concerns that cheap loans were fuelling price rises in runaway Melbourne and Sydney's property markets and creating unsustainable levels of debt affecting the broader economy.
But the rhetoric and lending caps have been largely targeting interest-only loans.
BankWest is the second lender in a week to ramp-up restrictions on borrowers with small deposits.
It means borrowers will have to take out two loans for a single property – a minimum principal and interest loan and a maximum interest-only.
Teachers Mutual Bank, which includes UniBank and Firefighters Mutual Bank, is requiring a minimum of 50 per cent principal and interest for all home loans, which means the maximum interest-only is also 50 per cent.
A new borrower seeking $300,000 will have two loans – a minimum of $150,000 on principal and interest and a maximum of $150,000 on interest-only.
"Teachers Mutual, along with all other financial institutions, has brought in prudent measures in line with the market, to meet the APRA requirement and maintain our level of under 30 per cent interest-only loans," a bank spokesman said.
