Ross Greenwood speaks to Andrew Willink, from Ratecity.com.au, about a home loan war taking place, and how people in the right position can take advantage of it.
Introduction: Home Loan war has started
Ross Greenwood: Great to have your company here on Money News right across Australia. I can tell you something that I always knew was going to happen, but it’s taking a little time and that is basically, a home loan war started in Australia. Now the reason why the home loan war is started, its pretty obvious when you start to think your way through this, is, house prices particularly in Sydney have started to fall.
What that means is that the volume of new loans that the banks are getting is also starting to fall. While the regulators have pushed the banks to raise their levels of liquidity and capital to back their loans, while they’ve also pushed the banks to raise interest rates for investors and also to cut the number of interest earning loans that they’ve issued to investors, what’s happened is, as the result, the number of loans they’re writing has fallen, hence, the profits are starting to come off. You saw that in the National Australia Bank numbers that came out yesterday.
Their interest margin, the amount of money they make to the amount of money they’ve got in their bank, is actually getting squeezed right now. Then today you saw, that the ANZ, has come out and dropped its headline, for those people taking what they call the ANZ simplicity plus home loan, paying principal and interest, to a rate of 3.99%. So rates aren’t going up, rates are coming down if you are an eligible customer. Let’s go to Andrew Willink, good of this programs, chairman of ratecity.com.au, the founder of CANSTAR who’s online right now. Andrew many thanks for your time as always.
Interview with: Andrew Willink, Chairman, RateCity.com.au
Andrew Willink: Hi Ross.
Ross Greenwood: Okay, so let’s try and explain this to people because it is genuinely a home loan war and people in the right position can take advantage of it.
Andrew Willink: Absolutely right. The people in the right position are those have got a large equity, they’ve got at least 20% equity in their home. In other words, the loan to value ratio is about 80% and anyone that has got a better value there is the target for these banks because they’re the lucrative, usually also the greater volumes and the higher amounts that they borrow. So, what we’ve seen is that the banks are able to offer, in the case of ANZ, a further discount of 0.04%.
Ross Greenwood: Okay. I’m just thinking about this because, you’re talking about people with a lot of equity as being 20%, I would have thought, in my case, a lot of equity would be more than 50% equity in your house and so as a result, surely a lot of people listening to this program will be going “Well actually I’ve got 70% equity in my house, 65% equity in my house, whatever it might be. Those people also must be in a terrific position to take advantage of some of these cheaper principal and interest rates that are going out there from the big banks.
Andrew Willink: Well, absolutely. So you have to ask the question to all of those that are paying more than 4% on their variable rate, that they’ve got an opportunity to reduce that, but in the case of ANZ, which is not the cheapest because, the Quarry Bank is another one this week change the rate to 3.69%, so borrowers in the Quarry is 30 basis points cheaper, but they’re not the cheapest still because reduced home loan would have the lowest rate today.
They also reduced their variable rate by 5 basis point to a rate of 3.39. The gap between that and the rate of the ANZ of 3.99 is what people with good equity in their home should be actually going for. They should be ringing around first, testing their own institution to see if they will drop the rate because you’re asking for it and then if they don’t, then you’ve got the opportunity to look at other places as low as 3.39%.
Ross Greenwood: There’s another aspect of this, it’s really important is you might be paying 3.3 or 3.6% for your loan, but given the outlook from the Reserve Bank, we’ve had week retail sales, we’ve had house prices starting to come off, we know that housing starts are pretty slow at the moment. What that means is we know that interest rates are certainly not going up anytime soon, talked to Bill Evans from Westpac, they’re certainly not going up during 2018 and probably not for much of 2019 and so that means you can have a bit of confidence when taking out those variable light rate loans.
Andrew Willink: Well, totally and I really enjoyed that program last week of Bill Evans, because there were so many facts in there that should give borrowers the confidence that rates are not going up. It’s unlike what’s happening in the United Kingdom, it’s unlike what’s happening in the United States. So we shouldn’t be rushing into it, but definitely the opportunity to get a rate that is below the 4% is what people should be having for their home loan.
Ross Greenwood: Alright, now let’s answer another part of this because the reason why banks are doing this, if house prices are coming off and consumers are increasingly reluctant to pay such large amounts for mortgages, banks make money by selling loans. That’s it pure and simple. As a result, it’s not as though they’re giving away a lot here, they’re actually trying to give the incentive for new customers to come in through the door.
Andrew Willink: Yes, totally. Because as you explained earlier, the interest only loans with increase dramatically over the last couple of years, has stopped, there was a cap on that. So they can’t do any more of that because, a lot of activity’s still in the marketplace but when I talk to people from the UK, who recently come from there, similar things have happened. The market has actually slowed down significantly and that is a problem. Our rates could be going lower, but will the money actually be available? Will you be able to qualify even if you’ve got good equity in your home and that will be a real problem.
Ross Greenwood: I would think the vast majority of people listening to this program now as I say, have got that sort of equity in their home and as a result probably, at best position to be able to take advantage of these cheaper rates right now. Andrew Willink, the chairman of ratecity.com.au and also the founder of CANSTAR. Andrew as always we appreciate your time on the program.
Andrew Willink: My pleasure, Ross.