Mozo Money Moves: Gap between investor and owner occupier rates narrows, are banks targeting investors?

Welcome back to another edition of Mozo Money Moves, your weekly banking wrap where we look at key changes to personal finance products, and review what’s been happening to interest rates, fees and conditions. 

This week, National Australia Bank (NAB) cut advertised variable rates for some loans, which prompted Mozo to look a little deeper into the rates on offer for investors and owner occupiers, and it appears the gap between owner occupier rates and investor rates for borrowers paying principal and interest is narrowing.

Mozo also shared new research that showed the differences in cost between different travel money cards, to help Aussies save hundreds of dollars on their trips abroad this Winter by planning their spending method ahead before hopping on a plane.

Home Loan Moves

A few smaller lenders made changes to home loan rates this week, making adjustments to current offers, but only one substantial move occurred from the bigger banks.

Notably on Monday, NAB cut interest rates between 0.78%-1.08% on its Tailored Home Loan offerings, marking the first variable rate cut by a Big Four Bank this year.

The cuts were applied to rates for both owner-occupiers and investors, paying principal and interest or interest-only, with a loan-to-value ratio (LVR) between 70-80%. 

NAB's Tailored Home Loan now advertises a variable interest rate starting at 6.79% p.a. (6.87% p.a. comparison rate*) for owner occupier borrowers with a 70% LVR paying principal and interest, a drop 0.78% from its previously advertised rate.

Investors looking to secure a NAB home loan benefited from an even bigger drop in rates, with cuts of 1.08% to variable rates as low as 7.09% p.a. (7.17% p.a. comparison rate*) for those with an LVR of less than 70%.

“Mozo data shows there could well be a trend emerging in the home loan space, as the gap between investor home loan rate and owner occupier home loan rate averages for borrowers paying principal and interest is narrowing, ” said Mozo’s money expert Rachel Wastell.

“As interest only loans are high risk, these loans are priced higher for either borrower type, and as such there is very little difference between these advertised rates for owner occupiers and investors, but historically principal and interest loans for investors come with much higher rates.”

According to the Mozo database, in 2018, the gap between the average investor rate and owner occupier rates was roughly 50 basis points. However in the last quarter of 2021 that gap began to close, dropping below 45 basis points, to continue on a downward trend. The gap is now closer to 35 basis points. 

Further, recent Lending Indicators data from the Australian Bureau of Statistics highlights a surge in lending to investors, rising by 21.5% over the past year, and accounting for over half total new loan commitment growth.

“It seems like the banks are adapting to an evolving property market, and this narrowing gap between investor and owner occupier home loan rates may be a strategic move by the banks to attract a growing cohort of property investors,” said Wastell.

Last week, the Commonwealth Bank also released data that suggested the younger generation were opting to invest when buying their first property, rather than buying a property to live in. According to the bank, 46% of its new property investors in 2023 were made up of millennials, and 37% were Gen z buyers.

"As property prices and rents continue to skyrocket, first home buyers who feel locked out of the market may be opting to rent-vest, rather than buying a home to live in, to get their foot on the property ladder,’ said Wastell.

“Buying a property at a lower cost in a less desirable area, and then renting it out, could be an opportunity for younger generations to become homeowners, and if the gap between investor rates and owner occupier rates continues to narrow, there could be some attractive rates on offer for prospective rent-vestors.”

Low Rate Investor 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

Mozo Home Loan Insights:

• This week, NAB dropped interest rates on select home loans, with a cut of up to 1.08% now available to investors paying principal and interest.
• If you’ve been paying down your current home loan for a few years now, you could be in a position to score a better rate, here’s how.
• If you fall into negative equity, it can become a problem. So what is it exactly, and should you be concerned about it?
• Can you afford an $800,000 home? Here’s how much you’ll need.

Travel Money Moves

Mozo also released new data this week to help travellers preparing for trips abroad this Winter, urging them to carefully consider their choice of travel money card. 

For travellers, travel money options beyond credit cards include debit cards, foreign currency accounts, and prepaid travel cards. As part of the Mozo Experts Choice Awards 2024 Mozo looked at exchange rates, conversion fees and overseas ATM fees to find that proactive planning could save Aussies hundreds of dollars.

Opting for a foreign currency account held the most substantial savings for travellers visiting the US, UK, or Europe, as they offered superior exchange rates, roughly 5% less than those charged on prepaid travel cards, and close to 1% less than everyday debit cards that use Visa and Mastercard exchange rates.

However, travellers should make sure that if they opt for an everyday debit card to fund their overseas travel, they should make sure they are not charged currency conversion fees or overseas ATM fees.

Travellers with everyday debit cards that do charge fees, could be paying $262 in conversion fees, based on the average currency conversion fee in the Mozo database of 2.62% and a $10,000 (AUD) balance. That doesn’t include the potential cost of overseas ATM fees, which cost $3.16 on average for every withdrawal you make.

"As the cost of living continues to rise, making informed decisions about the type of card you use on your trip has never been more crucial," explained Wastell.

"While most debit cards can provide competitive exchange rates, where travellers get burned is on high currency conversion fees and overseas ATM fees charges, which really add up over the course of a holiday. This is why it's so important to compare in advance."

Best Travel Money Cards

Travel Money Insights

• Mozo money writer Jack Dona shares his own experience with the Wise foreign currency account and how it saved him money and kept it simple.
• When planning for a holiday most will think about where they want to go and how much it will cost, but travel insurance should also be top of mind.
• Thinking about taking a trip abroad this winter? Here’s where Aussies are travelling, and which destinations have the biggest insurance savings.
• If you can’t afford to go overseas, and are opting for a road trip increase, you’ll want to check these things before you jump in the car.

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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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