Residential Investment Loan
Personal Investment
Wednesday July 31, 1996
GOLD Bank NZ
SILVER BankWest
BRONZE Citibank
Advance
Among the top three this year was a swap between last year's gold and bronze recipients, a new player and a big fall for the previous silver winner.
Bank of New Zealand jumped to first place this year after coming third in 1995. Citibank has fallen from first to third. BankWest appears for the first time in the survey, knocking out Town & Country which fell to ninth this year. "The Perth market is the most competitive and comes up with the most aggressive pricing," says Andrew Willink of CANNEX.
Currently BankWest has a range of variable interest rates for investment properties. If the value of the loan is less than 80 per cent of the value of the property, the standard investment rate is 9.9 per cent, the same as the owner-occupied rate.
Customers who take a package that includes other bank benefits such as two accounts free of bank fees, pay $8 a month for the account and 9.75 per cent for the investment loans. Once the loan is held with the bank for more than five years, the rate is reduced to 9.5 per cent.
Although owner-occupied and investment loans are charged the same rate, when the loan is for more than 80 per cent of the property's value, the bank charges a 1 per cent premium.
Fixed rates are 8.4 per cent for one year, 8.95 per cent for two, 9.75 per cent for three, and 10.25 per cent for four and five years.
Steve Nottage, senior manager for housing loans and accounts at BankWest, says that the bank has close to 30 per cent of the Western Australian residential investment market, which represents a third of its total lending for housing.
Citibank introduced same-rate loans for owner-occupied and investment loans in 1988. Sanjiv Das, the general manager, marketing, for consumer mortgages, says the bank sees no reason to change its policy. "The delinquency rate and performance of investment loans is just as good as owner-occupied. From a risk perspective, we don't see a need to put a premium on investment loans," he says. Among the major banks, the standard variable rate for investment loans tends to be more expensive than for owner-occupied property, although as competition intensifies that differential is disappearing. At press time, Westpac's investment rate (excluding special offers) was 11.5 per cent while standard variable (Premier Options) for owner-occupied was 9.8 per cent. The Commonweath exhibits similar trends. Residential investment loan rates are 10.9 per cent versus 9.75 per cent for owner-occupied. These rates were accessed from the banks' Internet home pages.
The ANZ, however, cut its variable rate on residential investment property loans in late June to 9.75 per cent from 10.9 per cent for new customers. Existing customers have to wait until August 30. That move brings the ANZ's residential investment property rates into line with owner-occupied home loan rates, following the drop in owner-occupied rates from 9.9 to 9.75 per cent.
Where the banks converge on pricing is in the fixed-rate offer. Westpac and Commonwealth have the same rates for fixed-interest loans, whether for owner-occupied or investment purposes.
Citibank's experience in the past year suggests that interest rates did not fall far enough to generate a pickup in investment purchases. Its five-year fixed rate has dropped from the 10.95 per cent it was a year ago.
Property investors have not been slow to exploit the changing fortunes of the money market. "We are seeing a lot of refinancing, which is at an all time high," Das says.
For Citibank, the refinancing activity is mainly for the basic no-frills variable rate, currently at 9.2 per cent, for investment loans and revolving loans. Citibank's rate was more attractive than the other larger banks. Excluding special offers, the Commonwealth's variable rate for residential investment was 10.9 per cent and Westpac's was 11.5 per cent.
Citibank's standard variable rate is 10.4 per cent, although Das expects this to fall soon. He sees most activity in this market occurring in the two and three year fixed-rate area, where Citibank is not competing aggressively. Two-year and three-year fixed are 9.95 per cent and 10.5 per cent respectively.
Last July, Citibank launched Home Credit aimed at the larger home owner and smaller investor who want to access the equity in the property but require a minimal number of transactions. Three transactions (ATM and cheque) are free each month, with $2 an item thereafter. The interest rate on borrowed funds is the standard variable loan rate of 10.4 per cent, the same as charged by other banks.
"Sixty per cent of new sales are from Home Credit in dollar terms," says Das. He says the facility has proved popular with investors who are paying the same rate at other banks but cannot access the equity in their property investment.
© 1996 Personal Investment