Home owners paying off a mortgage on the house they live in are on the way to becoming the new prime customer for the nation’s banks.
Facing new rules on lending to investors, banks are set to fight hard for borrowers who intend to live in the home they are borrowing against and that could mean bigger interest rate discounts for these customers.
Just this month a wholesale lender owned by National Australia Bank introduced larger discounts for new owner-occupier borrowers than new investors.
“We’ve got a bigger discount for owner-occupied lending than we have for investor lending,” said National Australia Bank’s executive general manager of growth partnerships, Anthony Waldron.
“It’s a direct response to us having a higher appetite for owner-occupied lending.”
The reason is that the Australian Prudential Regulation Authority, which maintains the safety of the banking system, is demanding that banks slow investor credit growth to less than 10 per cent a year, meaning banks must compete for other customers.
Mr Waldron said the bank’s wholesale white label lending business, Advantedge, which sells loans through brokers under different brand names had this month introduced changes that meant new owner-occupier borrowers received deeper interest rate discounts than investors.
Advantedge is offering owner-occupiers a discount that is about 15 basis point larger than the discount given to housing investors, he said. The change does not apply to NAB-branded loans, but it could be a sign of things to come.
Mr Waldron said each bank would respond to APRA’s 10 per cent growth cap differently, but the “differentiated pricing” approach may become more common, as banks seek to expand in home lending while still complying with APRA’s cap.
“Within a 10 per cent cap, I think you will see that play out more and more over the next few months, as we see people really try to grow their owner-occupied books and operate within the guidelines as set out by the regulator,” he said.
It follows Westpac’s comment earlier this month that it would apply tougher tests to new property investor borrowers when assessing how they would cope with higher interest rates.
The focus on investor lending comes amid signs the Reserve Bank of Australia is torn between cutting interest rates again to push the local currency down and further stimulate investment and holding them to prevent over-indebtedness in Australian households, according to one senior board member.
Deputy governor Philip Lowe told an investment conference in Sydney on Monday that it was not in Australia’s long-term interests to “engineer” a debt-fuelled consumption boom through a low cash rate.
“This is especially so when debt levels are already high and prospects for future income growth are not as positive as they once were,” he told a gathering of chief financial officers.
The comments come on the back of fears from ASIC chairman Greg Medcraft about property bubbles in Sydney and Melbourne.
At the same time, however, monetary easing around the world had stymied to some degree attempts by the RBA to lower the value of the Australian dollar to accommodate the economic transition away from resources-related investment.