New borrowers looking for a mortgage discount are disappointed when banks start raising variable rates again
- Banks started raising interest rates on loans for new customers
- Reverse trend, too expensive for past rate cuts
Several banks have started raising rates for new mortgage customers, reversing the trend of interest rate cuts to attract new customers.
The days when banks discounted home loan interest for new customers appear to be waning, as the big four banks pulled the trigger on out-of-cycle increases.
After months of tariff cuts on select products to lure new customers from competitors, the trend seems to be turning since the last 0.25 percentage point increase in the official spot rate in March.
Commonwealth Bank, Australia’s largest bank, raised rates for new customers on its package of variable home loans for the second time in two weeks on Friday.
New mortgage customers will no longer be able to take advantage of low-priced loans that were previously discounted to attract new customers (stock image)
This followed increases in new client variable rates by Westpac earlier this week, and similar moves by NAB and ANZ last month.
Canstar financial expert Steve Mickenbecker said banks had been doubling down on the lowest-priced loans that had previously been discounted to entice new customers looking to refinance.
“In the past year, the difference between the average interest rate for new loans and existing loans has increased by 0.32 percent,” he says to AAP.
“The March and April out-of-cycle increases for new loans narrow this gap a bit.”
Commonwealth Bank raised new customer rates on its variable home loan package for the second time in two weeks on Friday, following similar moves from Westpac, NAB and ANZ (stock image)
Mr Mickenbecker said offering low rates to new customers may have weighed on bank margins and weakened returns.
“There have been suggestions from bank executives that reduced rates for new borrowers are putting pressure on banks’ interest margins, and it seems that this is beginning to be reflected in recent rate movements,” he said.
RateCity research director Sally Tindall agreed that it was becoming too expensive for banks to dole out rebates on such a large scale.
“After 10 rate hikes and massive increases in global investor funding, the big banks are now quietly letting their biggest discounts slide off the table,” she said.
Ms Tindall said some lenders, especially the smaller ones, had begun to cut their fixed rates.
She said 16 lenders had cut fixed rates in the past two weeks, while eight had raised rates.