Mozo Money Moves: Investment loans surge amid refinancing lull as banks favour cuts for investors

This week’s bumper edition of Mozo Money Moves dives into the latest Lending Indicators data and Mozos latest research report, The Cost of Connectivity: Why it pays to shop around.

We’ll highlight the sayings on offer for Aussie mobile and broadband users who switch to a Mozo Experts Choice Awards winner, review the refinancing landscape, and analyse the growth in investor loans leading to a number of variable rate cuts.

Let’s get into it!

Owner Occupier Home Loan Moves

On Thursday, Lending Indicators data was released for April, revealing the value of loans to owner-occupiers, excluding first home buyers, rose by 4.7% to $13.1 billion, up 18.8% from April 2023. First home buyer loan values also climbed by 3.4% to $5.4 billion, an 18.6% increase year-on-year. 

In the midst of these rises however, external refinancing (switching from one bank to another) for owner occupiers remained relatively flat, continuing the downward trend that started after the peak in July 2023.

“Refinancing for owner occupiers has been on a downward trend since the middle of last year, as not only are homeowners holding out for an RBA cut, with rates sitting around 6 or 7%, but as the mortgage wars come to an end, incentives and cashback offers are dwindling,” says Rachel Wastell Mozo’s finance expert.

“Adding to that is the fact that to refinance, many borrowers have to prove they can meet APRA’s serviceability buffer of 3%. This means some mortgage holders are now being assessed on their ability to repay current loans at 9 or 10%.”

“With the average loan size sitting at over $600k nationally, that’s four or five thousands dollars Aussies are needing to prove they can pay every month just to service their loans, and that doesn’t factor in the rising cost of insurances, utilities and groceries that are already stretching household budgets.”

Despite the end of the mortgage wars from bigger banks, however there are still some incentives available to borrowers who opt for smaller banks, and over the past two weeks on the Mozo database there were a number of variable rate cuts for owner occupiers (who can afford to refinance) as challengers try to stand out from the crowd. 

Aussie cut its Prime owner occupier rates by 0.05 - 0.65%, QBank and Qudos Bank cut variable rates by 0.05%, MyState cut its 80% LVR Basic Variable rate by 0.05% and BCU cut a few variable rates for low LVR tiers by 0.05 - 0.14%, but hiked higher LVR tiers.

The rate leader in the owner occupier variable rate space is still G&C Mutual bank, offering the lowest variable rate for principal and interest loans at $500,000 with an 80% LVR on the Mozo database, with the Essential Worker home loan.

LOWEST VARIABLE RATE OWNER OCCUPIER HOME LOANS 

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

Investor Home Loan Moves

Thursday’s Lending Indicators data also revealed some interesting insights into the property investment space, showing investor loans drove the high growth in values in April, up 5.6% month-on-month and a whopping 36.1% year on year, reaching a total of $10.9 billion. 

Although investment loans make up a smaller proportion of the total home loan market, the drive in new investor loans speaks to both the high rental yields currently on offer and the benefit investors have in being able to meet serviceability buffers through tactics like negative gearing.

According to the ABS data, despite owner occupier external refinancing dropping slightly by 0.43% to $10.2 billion in April, investor external refinancing saw an uptick, lifting 5.54% to $6.1 billion in April. 

Further, while the number of new owner occupier loans rose 16% from February to April 2024, the number of new investor loans increased by 22%.

“When looking at investor loans compared to owner occupier loans, the landscape is a little different,” says Wastell. 

“High rental yields resulting from a rental market short in supply are providing lucrative opportunities for property investors, especially as investors often have existing assets that enhance their borrowing power, a perceived lower risk profile and the ability to increase after-tax income through various investor tax benefits.”

The most significant increases in investor loans were recorded in New South Wales and Queensland, with growth rates of 43.9% and 46.4% respectively since April 2023. This aligns with the idea investors are looking to benefit from the rising cost of rent, as these states host the two priciest property markets in Australia.

The increase in the number of investor loans also coincides with a trend Mozo reported in this column back in April, as banks start to cut investor loan rates to attract this growing cohort of borrowers, with lower perceived risk.

Gap narrows between owner occupier and investor rates

According to the Mozo database, the gap between the average investor rate and owner occupier rates was roughly 0.50% in 2018. However, in the last quarter of 2021, this gap began to close, dropping below 0.45% and continuing on a downward trend. In April 2024, the gap had narrowed to 0.35%, and as of 7 June 2024, the gap is now 0.32%^. Mozo experts will be keeping an eye on this space.

In fact, in the past week alone a number of cuts to investment loan variable rates have occurred. Some banks have kept the cuts on par with owner occupier moves, however others have opted to cut investment rates by a larger percentage.

IMB Bank cut Essentials and Budget home loans investor rates by 0.05-0.15%, QBANK made the same 0.05% variable rate cuts to owner occupier and investor loans, while Qudos gave investors opting for the Low Cost Home Loan (70-70% LVR), Qantas Points Home Loan (LVR <80%) or Variable Rate Home Loan (LVR <80%) a larger cut than their owner occupier counterparts, at 0.15%. 

Though Qudos cut its No Frills Home Loan (<70% LVR) investor rate by just 0.05% (in line with owner occupier cuts) this new headline rate of 6.19% p.a. (6.19% p.a. comparison rate*) is now just 0.20% higher than the owner occupier equivalent (5.99% p.a., 5.99% p.a. comparison rate*). 

The moves follow some major cuts Mozo has noted over the past few months, including a 1.08% cut to NAB’s Tailored Home Loan, a 2% cut from GMCU and four 0.95- 0.96% cuts to various Illawarra Credit Union investment loans.

"These rate cuts highlight how competitive the investment loan market has become," says Wastell. "Banks are clearly looking to attract more investors by narrowing the gap between investor and owner occupier rates."

"With the rental market remaining tight, these reduced rates could make property investment even more appealing, potentially driving further growth in investor loan numbers."

LOWEST VARIABLE RATE INVESTOR HOME LOANS 

*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

^ Average home loan variable rate in the Mozo database based on a loan amount of $400,000, for Owner Occupiers or Investors paying Principal & Interest with a starting LVR of 80%.

Home loan insights

• A low headline rate from a Big Four bank is bound to turn heads. But is CommBank’s new Digi Home Loan more than just a pretty face?
• Buying a property with another person? Here’s the difference between joint tenancy and tenancy in common, and why might you opt for each.
• How high will rates go in 2024? Mozo money writer Jack Dona shares the Reserve Bank of Australia’s rate hike movements, play by play

Mobile & Broadband Moves

This week, Mozo released its latest research report ‘The Cost of Connectivity: Why it pays to shop around’, which dived into the analysis of over 600 different mobile and broadband plans as part of the Mozo Experts Choice Awards 2024.

The report revealed that Aussie broadband users could save between $72 - $495 a year, and mobile phone users between $63-$142 a year, by switching from the average plan cost to one of the Mozo Experts Choice Award winners.

Mozo’s comprehensive analysis of the telecommunications market involved comparing 258 NBN and 5G broadband plans from 56 providers, and 374 4G and 5G postpaid and prepaid mobile plans from 49 providers. 

According to the ACCC, close to half of all Aussies choose Telstra for mobile and broadband services, but 80% of the Mozo Experts Choice Award broadband plan winners and 70% of the mobile plan winners were smaller brands. 

“Mozo research shows shopping around for a new mobile or broadband plan could help Aussies pocket $100s of dollars in annual savings, as smaller providers and MVNOs offer comparable plans at a much lower price,” stresses Wastell.

"Consumers should be comparing their plans to those on the market, to avoid overpaying. Even if you don’t want to switch, knowing what’s out there can give you the upper hand when you call your current provider to ask for a better deal."

Key money saving insights

• Avoid the “Loyalty Tax”: Regularly compare to see if there’s a better deal.
• Negotiate: Find cheaper competitor plans to negotiate with your provider.
• Check Usage: Check your data, call, and text usage to avoid overpaying.
• Opt for the underdogs: Smaller brands can often provide cheaper deals.
• Don’t blindly bundle: Opting for the cheapest mobile and broadband deal separately can work out cheaper than bundle deals, so do your research.

As a part of Mozo’s commitment to making your money count for more, each month we “roundup” the rate changes, key banking trends and money moves in the Australian personal finance market. 

If you’d like to see the analysis in full once it’s released, you can subscribe to receive the Mozo Banking RoundUp here.

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