There are 74 mortgage lenders in the Infochoice database and at the close of business yesterday 28 had changed their standard variable rates in response to last week’s Reserve Bank of Australia 25 basis point increase in the official cash rate. Of the 28, 19 went up by more than the change in the cash rate, eight went up by 25 basis points and one, Teachers Credit Union, went up by less.
Among the big movers over the past three months are Westpac, up a total of 95 basis points in three rate changes, AIMS Home Loans, up 93 points, and Big Sky Credit Union, up 91 points.
Suncorp, Aussie, Bank SA and St George are all up 89 basis points; Bank of Queensland and Commonwealth Bank are up 87 points. ING Direct is up 85 points. Teachers Credit Union chief executive Steve James said his group is funded 95 per cent by retail deposits and has an average cost of funds of 3.7 per cent.
James said Teachers is offering very competitive rates on high-interest savings accounts and term deposits, including a rate of 7.05 per cent for three years, but it also has a lot of transaction account money.
He said that with the average cost of funds coming down, as last year’s very high 12-month term deposit rates roll off, and with loan rates going up, the group’s margin is expanding. He said a lot of institutions would be getting the same benefit.
The standard rate for a Teachers Credit Union home loan is 6.49 per cent.
Its most popular product is its discounted package loan, the Smart Home Loan, which sells at a 60 point discount. James said one of the myths circulating in the current market is that only the big banks offer package discounts. Not true.
Resi Mortgage Corp’s head of consumer advocacy, Lisa Montgomery, said another myth was that small lenders had a limited amount of finance available. Some do. Last week Citibank’s head of mortgages, Steve Ramage, said the bank had been quiet in the mortgage market this year because of funding cost issues.
Montgomery said that constraint did not apply to all small lenders. Resi is funded by Advantedge (the new name for the mortgage management business sold by Challenger to NAB) and supply is not an issue.
Montgomery said: “We have plenty of capacity and our volumes have been growing at around 30 per cent over the past few months.”
Resi’s Complete Home Loan has gone up 75 basis points over the past three months and is 6.37 per cent. The group is doing most of its business with a product called Switch and Save, which offers a discounted intro rate (currently 5.7 per cent) for two years.
A number of lenders are still offering standard variable rate home loans below six per cent. They include ING Direct, AMO, BMC Mortgage Corp, Gateway Credit Union, Heritage Building Society, HomeStar, ME Bank and QuickDirect. James said deposit rates were artificially high and were being used to apply competitive pressure. He expects that to be a short-term effect and believes they will ease. Queensland Police Credit Union chief executive Grant Devine said:
“Westpac’s 6.8 per cent for a 12-month term deposit is not sustainable, and you have to ask whether these rates are being driven by competition for funds or driven by a desire to get rid of competition and become more dominant.
“We are well placed currently and have a growing membership, but the challenge for the smaller mutuals is always the funding side of it and maintaining liquidity. The big question now in this sector is how long is this price war going to continue? How long can term deposit rates stay above standard variable mortgage rates?”
QPCU has opted to keep to the RBA’s guidance and raise rates on standard variable mortgages by 0.25 per cent, but Devine says he can’t make a commitment that the credit union won’t have to go above RBA rate rises in the future.
“No responsible lender can make a guarantee like that. Funding costs are rising and currently we have made a decision that at the end of the day we can afford to absorb those costs largely because we are not shareholder driven.”