How to avoid the big bank investment property interest rates hike

Lately, the big banks have been walloping property investors with an investment property interest rates hike – but if you’re smart, you can bite back and reclaim your money.

Recent research from financial comparison site Mozo shows that the average big bank principal and interest investor home loan rate at the moment is 5.12%, and for the 65-70% of big bank investment borrowers making interest only repayments, it’s even higher at 5.28%.

A big part of why investors are being hit so hard is APRA’s recent restrictions on lending considered “high risk” – namely, investment and interest only loans. The restrictions built on the 10% investor profile growth limit set in 2014 and meant that:

  • Banks need to limit new interest-only lending to 30% of their total new residential lending
  • Interest only loans being approved with LVRs over 80% need to be subject to strict limits
  • Banks must ensure strong scrutiny and rigorous justification for interest-only lending approved with LVRs above 90%
  • Investment lending numbers must stay “comfortably” beneath the 10% growth limit

While some lenders have put in place other measures, like dropping investment loan LVRs, the main response to these new restrictions was a series of rate hikes to discourage interest-only lending. However, because buyers are still eager to get their hands on a property, what it really means is that the banks’ profit margins are set for some generous padding.

Australia’s big banks are now among the most profitable in the world. They are tipped to be announcing a collective half-year profit of around $15 billion. And that’s no surprise considering the recent round of investment loan hikes alone raked in a collective profit for the big 4 of $3.7 million every day.

The Big 4 Profits from the recent investment property interest rates hike

 

Rate increaseExtra interest
earned per day
Extra interest
earned per month
Extra interest
earned per year
ANZ
Principal & interest0.25%$198,031$6,023,432$72,281,178
Interest Only0.36%$522,801$15,901,859$190,822,311
Commonwealth Bank
Principal & interest0.24%$312,915$9,517,843$114,214,121
Interest Only0.38%$949,611$28,884,011$346,608,130
NAB
Principal & interest0.25%$231,926$7,054,410$84,652,917
Interest Only0.25%$463,852$14,108,819$169,305,833
Westpac
Principal & interest0.23%$271,145$8,247,324$98,967,889
Interest Only0.28%$770,209$23,427,182$281,126,178
Total$3,720,489$113,164,880$1,357,978,558

 

With 1 in 5 Aussies expected to retire with a mortgage, and as household debt outstrips stagnant wages, it’s harder and harder for the banks to justify these out-of-cycle increases. But that’s not going to stop big banks from charging high interest while buyer demand is high enough for them to get away with it.

The good news is there is a way to avoid lining the banks’ pockets with extra interest – and that’s by switching to a low rate loan from a smaller lender.

It’s no secret that smaller lenders often have better rates on offer than the major players, but the recent investment property interest rates hike has just made it more apparent. Mozo data shows that by switching from the average big bank interest only investment rate of 5.28% to the lowest rate around, 3.84%, borrowers could save up to $4,320 in interest each year on a $300,000 loan.

Therefore, if you’re serious about investing in the property market, it’s never been more important to look outside the big banks.  Make sure you’re getting the best deal possible, the best investment property interest rates instead of just adding to a lender’s profit margins.

Steve Jovcevski

Steve Jovcevski

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