Why Home Loadn Competition Will Never End
Sydney Morning Herald
Saturday July 25, 1998
With the latest housing finance figures showing loans, particularly refinancing loans, down on previous levels, some are predicting that Sydney's hot property market is cooling down.
Add to this Citibank's decision during the week to raise its variable interest rates by 0.3 percentage points to 6.79 per cent, and it seems that competition in the home lending market may be dying down as well.
Don't you believe it, says Market Faxts managing director Chris Gosselin.
"Tough competition will never be over in the housing market."
In fact, he says the impact of the lower housing finance figures will be more competition among lenders.
"There may be a bit more of a squeeze. But pricing differentials between the top and the bottom is small," he says.
"A rate of 5.99 compared to a rate of 6.8 might seem like a big difference, but in repayment terms it is not a lot."
Interestingly, however, he says the interest rate itself is becoming less important.
"What is important is features and flexibility. A 7.2 per cent line of credit loan, in the right hands, may be more cost effective than a 6.1 per cent no frills loan."
This could be the reasoning behind Citibank's move.
"Although Citibank is a global name, its Australian market share is small," he says. "Citibank is not aiming at the first home buyer who is borrowing $80,000 to finance a $90,000 house.
"It is aiming at the higher net worth executive market with good assets."
He says this market is not as rate sensitive as the bottom end.
"With the bottom end, every little cent counts.
"With Citibank clients every cent doesn't count but every feature does."
He doesn't think we are necessarily going to see a swag of lenders following Citibank's lead and increasing their rates.
When it comes to which institution is offering the best home loan deal, Gosselin says: "There is no such thing as the best deal.
"We could prepare a table of the three cheapest basic loans, the three cheapest standard variable loans and the three cheapest home equity loans, but it is almost impossible to say this product is the best.
"It depends on what you want."
© 1998 Sydney Morning Herald
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