Trending Financial News 17 September 2019

Borrowers switching to Principal & Interest

Home loan borrowers are ditching interest-only loans as they look to reduce mortgage debt in the current low rate environment, says AMP Bank.  AMP reported a 14 per cent increase in the number of borrowers switching from interest-only to principal and interest mortgage products since the Reserve Bank’s June rate cut.

“The recent rate cuts have put more money in the pockets of homeowners, and we are seeing a significant uptick in the number of those customers opting to pay down their debt with the extra funds they have,” said AMP Bank chief executive, Sally Bruce.

Homebuyers not interested in interest-only mortgages

Official data published by the Australian Prudential Regulatory Authority shows that interest-only mortgages are rapidly losing favour with home borrowers. In the three months to the end of June 2019, lenders approved 12,620 interest-only home loans, down from 15,704 loans in 2018.

Average interest rates on interest-only mortgages are about 0.50 percentage points above principal and interest rates in the June quarter, according to the Reserve Bank.

Sharkie moves to police the loan sharks

South Australian Centre Alliance MP Rebekha Sharkie has introduced amendments to the payday lending provisions of the National Consumer Credit Protection Act. Ms Sharkie’s bill introduces a cap on the total payments that can be made under a consumer lease and requires small amount credit contracts to have equal repayments, equal payment intervals and no ongoing fees if the loan is repaid early.

The Sharkie bill replicates the government’s own abandoned draft bill on payday lending from October 2017. The government was responding to recommendations of the Independent Review of Small Amount Credit Contract Laws which recommended tougher laws to small amount credit contracts and consumer leases.

Morrison under pressure to stop the debt trap

Consumer advocacy and financial counselling bodies have established a campaign called Stop the Debt Trap Alliance to push for additional laws to police the small lending sector.

Consumer Action Law Centre chief executive Gerard Brody welcomed the government’s commitment to reform in the wake of the Hayne Royal Commission but said: “The government roadmap still won’t address the harmful practices of the multi-million dollar payday lending industry, which fell outside the scope of the royal commission.”

The Alliance is calling for the government to enact tighter rules proposed by the Independent Review of Small Amount Credit Contract Laws.

Bridging & short-term mortgage lender relaunches

Strive Financial now offers bridging finance and medium-term mortgage loans after bringing together two former lenders.

“The short-term loans we turn around in 24 hours with no financials, no tax returns, no back statements,” executive director, Cameron Garnham, told Broker News.

“It’s a pure security loan, anywhere from one week to three to six months.”

“If somebody rings up today and wants to pay their loan out,” said Garnham, “We can have it settled with no further interest charged.”

Strive mortgages are from six months to three years.

A century – of home loans under 3% pa

There are now 125 home loans with advertised rates under 3 per cent pa, including 124 for owner-occupiers, and just one for investors, on the InfoChoice database of 145 institutions.

Market trading indicates a 25 per cent chance of a rate cut in October. There are six variable rate home loans under 3 per cent on InfoChoice – from lenders Reduce Home Loans, Well Home Loans and Mortgage House.

For investors the only home loan under 3 per cent on the InfoChoice database is Bank Australia’s Premium Package two-year ($150K – $700K, LVR=70% – 90%) Loan at 2.99 per cent pa (comparison rate 3.75 per cent pa).

Home loan type (owner occupied)Home Loans under 3% pa (advrt. rate)Lowest rate home loan and (Comparison Rate)
Variable rate 62.89% (CR 2.90%)
ReduceHL
12-month fixed 132.79% (CR 3.95%)
Greater Bank
2-year fixed 402.74% (CR 2.96%)
Well Home Loans
3-year fixed 462.74% (CR 2.96%)
Well Home Loans
4-year fixed 82.94% (CR 3.76%)
St George Bank
5-year fixed 112.94% (CR 3.72%)
St George Bank
Investor loan 12.99% (CR 3.75%)
Bank Aust
TOTAL 12516 Sept 2019
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