Commonwealth Bank of Australia, the nation's largest property lender, is planning to introduce increased borrowing rates for property investors along with changes for interest-only home buyers over the next four months.
Increases for property investors of up to 15 basis points will take effect from this Friday and interest-only home loans will be repriced from March 17, 2017.
Matt Comyn, group chief executive for retail banking service, said: "We have carefully considered the current environment when making this decision – in particular the higher costs associated with funding mortgages, the increased capital costs associated with providing home loans, and the need to remain below the regulatory 10 per cent investor home loan growth cap."
But the move has upset mortgage brokers that claim "under the cover of Christmas, CBA has become the Grinch".
The bank, which accounts for one in four property loans, is set to introduce complex changes to the pricing of interest-only loans by making changes to the reference rate, which is the base rate that applies to a borrower's loan.
The Reserve Bank of Australia, the Australian Prudential Regulation Authority, the bank's regulator, and the Australian Securities and Investment Commission have been urging banks to toughen interest-only lending amid concerns that overheating property markets are encouraging buyers to borrow more than they can repay, particularly if there is a market downturn.
Previous efforts by lenders have failed to dampen demand in Melbourne and Sydney, particularly by investors.
The confidential changes, which have been foreshadowed to mortgage brokers, are also being blamed on rising international funding costs caused by the "Trump effect", amid tougher underwriting standards, tighter rules and growing pressure on net interest margins on property lending.
Under the latest round of increases from the CBA, variable home loan rates for new and existing investment home loans will be raised by 7 basis points.
Rates on the line of credit products, such as Viridian, will rise by 15 basis points. There will not be an increase on the equity release products for seniors.
The changes are expected to increase costs for about eight variable rate home loan products.
For example, rates on the investment home standard variable rate will increase to 5.56 per cent, or an effective rate, after fees and charges, of about 5.7 per cent.
Its two-year introductory rate will rise to 4.38 per cent, or an effective rate of 4.8 per cent.
In a separate move, the CBA is also changing the reference rates for borrowers making interest-only repayments.
"We are making changes to reference rates to more accurately reflect repayment structures and loan purposes," according to bank documents.
A reference rate is the base that applies to a borrower's loan. It generally reflects the type of product, purpose and repayment type.
An interest rate is the interest amount a customer pays on their loan. The bank calculates the interest rate, also known as the annual percentage rate, by starting with the reference rate and adding or subtracting any premium or discount, which is the margin.
"Advise your customers that the change in reference rate is a change to reflect their repayment structure, and that the interest rate is currently the same as that of their existing reference rate," the document states.
The bank will tell borrowers that the change in the reference rate is a change to reflect their repayment structure, and the interest rate is "currently" the same as that of their existing reference rate, it states.
"But our rates are subject to change," it adds.
Any margin squeeze is likely to be highly controversial with mortgage brokers that negotiate discounts for clients.
The bank, which recently announced rate rises of up to 65 basis points on fixed-term owner-occupied and investment loans, also closed a popular loophole used by property buyers to switch from principal and interest loans to interest-only, which require monthly repayments because payments are deferred.This article was first produced at www.afr.com
Author: Duncan Hughes