Banks discounting mortgages aggressively

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From the SMH blog:

While standard variable mortgage rates have not moved since August last year when the Reserve Bank cut official rates, some borrowers have been able to get a better deal by securing a discount off the headline rate.

The discounts are typically offered by banks as part of a package deal, and the biggest reductions are reserved for people who borrow the most money.

Mortgage Choice, the country’s largest independently owned mortgage broker, says discounts have hit 1.4 percentage points recently, and the trend drove more borrowers towards variable rate loans in May.

A discount of this size would take the average variable home loan interest rate to just 4.55 per cent.

‘‘We haven’t seen discounting like this since well before the GFC,’’ spokeswoman Jessica Darnbrough said. ‘‘Lenders are hungry for business and with rates sitting at historical lows, they are all being forced to out-discount each other in a bid to grow their market share.’’

So! We get are currently cutting interest rates without cutting interest rates thus preventing ourselves from cutting interest rates.

Macroprudential now.

David Llewellyn-Smith
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Comments

  1. Mortgages for homes available at 4.55% – who says buying a house isn’t getting more affordable?

    Make the same size cut again, and credit for houses will be free in real terms.

  2. Banks are throwing away their profit growth for little good reason. Time to sell the mothers.

  3. Mortgage cap … 4.5 times household incomes …

    Mortgage capping still on the cards for Reserve Bank of New Zealand – Business News | TVNZ

    http://tvnz.co.nz/business-news/mortgage-capping-still-cards-reserve-bank-5990889

    In normal housing markets with housing at or below 3.0 times incomes, mortgage loads should not exceed about 2.5 times … refer … Demographia Survey http://www.demographia.com

    Its the high multiple lending that creates the major problems … ask the Irish.

    • The excellent RTE Ireland documentary … a must view …

      DESPERATE HOUSE BUYS … RTE TELEVISION

      http://www.rte.ie/player/nz/show/10285050/

      … is extremely useful to us here in NZ and Australia, as it illustrates graphically the extent of the carnage in Ireland. It is probably one of the best … if not THE best I have seen on the housing issue.

      “Multiple stretch” is hugely important. Ireland at the peak hit 4.7 … Australia and New Zealand are currently at about 5.5, with the 35 Chinese major metros at 8.3 (E-House). The Irish wiped about a quarter trillion euro out of their housing market value.

  4. Westpac is pimping margin loans hard on their broking site. What could possibly go wrong?

      • That article read like a bank advertorial and only lacked pom poms.

        Reward? deliver? (what like fresh bread), benefits, anti-dote?

        Perhaps Greg was just having some fun but they are hardly the words to describe pumping the economy up even more on cheap wholesale funds via our govt guaranteed banks.

        “….But movements in the cost of funds for the banks – particularly the majors – suggest that the time might soon be right for an out-of-cycle rate cut from Australia’s big banks…”

        “…the majors can deliver an out-of-cycle rate cut to customers as the cost of funds comes down…”

        “..banks suggests that all the majors are being rewarded with a substantially lower marginal cost of funds…”

        and the best bit

        “..So the time is now right – or it is nearing – for the majors to do as Gail Kelly suggested and pass on the benefits to customers, consumers and the economy.

        It might be just the antidote to the budget the economy needs….”

        More like ratsak to everyone other than Westpac safe in its govt safety crash helmet.

  5. Ronin8317MEMBER

    The mortgage discount is akin to the ‘Option ARM’ loans in the US, allowing people to borrow beyond their capacity. It’s like the GFC never occurred? I expect that when Australia property went bust, the people making the decision right now will claim ‘nobody saw it coming’ as well?

    • Well – you know that one with the punter – who lost 10 pounds on a race, and 20 pounds on replay.

  6. Can I ask a practical question.

    In the unlikely event some form of macroprudential were initiated, how would it work?

    For example, if one’s mortgage is 8x annual but they are already 3 years in, how does that work?

    If the value of someone’s property declines as a result, can one sue someone, anyone, for this disaster? Because what if there is an equity call?