Since the establishment of APRA’s limit to banks for their interest-only lending, they have been significantly hiking their interest rates to both new and existing clients in a bid to ‘motivate’ them to move to principal and interest repayments.

Out-of-cycle rate hikes have become the new norm for interest-only and investor loans, with some banks citing APRA regulatory measures as the cause, and others saying the hikes have nothing to do with APRA, adding greater opaqueness to the banking industry.

Concerning outcomes of these rises are the invitations by the banks for the consumers’ interest- only periods to be extended if they provide updated income and expenses information. Due to the recent tightening of lending parameters, many borrowers may not be able to afford their existing loans when assessed under current lending rules.

This presents a range of issues:

1. Impacted businesses will have cash flow issues due to having to pay higher principal and interest loan repayments.
2. Households will be put under financial stress due to higher loan repayments.
3. Investors will have cash flow issues due to higher mortgage repayments.
4. Rents will need to go up to compensate investors’ higher loan repayments.

A brief snapshot of some of the changes:

Effective 30 June, owner-occupier interest-only loans at NAB will jump to 5.77 per cent per annum while residential investor rates will grow to 6.25 per cent per annum.

Westpac announced that owner-occupied interest-only rates will increase by 34 basis points to 5.83 per cent and investor interest-only rates will increase by 34 basis points to 6.30 per cent. The group also announced an 8-basis-points reduction in variable interest rates for customers paying principal and interest on their owner-occupier home loans. This will take the standard variable rate for these owner occupiers to 5.24 per cent.

CBA revealed that standard owner-occupied interest-only home loans will increase 30 basis points to 5.77 per cent and standard investor interest-only will increase by the same amount to 6.24 per cent. The bank has reduced standard owner-occupied principal and interest loans by 3 basis points.

Contact Master Builders Financial Services on 1300 137 539 to discuss your situation.

Chocolate Money t/a Master Builders Financial Services
Australian Credit License 387277