Challenger bank increases investor rates by 0.25 per cent

In the latest move on interest rates, a non-major bank has announced that it will increase the standard variable rate on two of its investor home loan products by 0.25 per cent from Tuesday, 4 April.

ING DIRECT's standard variable rate on the Orange Advantage home loan for investors will move to 5.42 per cent from next Tuesday, while the standard variable rate on the Mortgage Simplifier home loan for investors will be 5.32 per cent at the new rate.

The move follows on from similar rate hikes by many lenders, including all four of the major banks.

According to the latest volume of JP Morgan's Australian Mortgage Industry Report, new capital requirements under Basel 4 could see property investors hit by rate hikes of up to 3 per cent.

Speaking in Sydney earlier this month, JP Morgan analyst Scott Manning said, "We have seen ongoing repricing of the back book and also some change in discounting behaviour. But one of the things that has also come through is the divergence in repricing behaviour.

“The mortgage repricing against the SVR product is around 30 basis points. But investor mortgages and, in some cases, interest-only loans have been twice that rate at 60 basis points.”

With risk weights for investor loans set to increase significantly, JP Morgan expects ongoing significant dispersion in pricing for mortgage products to continue.

“You could be looking at pricing responses here anywhere between 1.5 per cent to 3 per cent, which is quite meaningful when you consider that mortgage rates at the moment are around 4.5 per cent,” Mr Manning said.

Increasing investor appetite has led some analysts, such as Morningstar's David Ellis, to suggest that the prudential regulator could soon introduce additional macroprudential measures

In a research report on Commonwealth Bank of Australia (CBA) earlier this month, Mr Ellis said, “Increasing concerns of an overheating housing market are likely to prompt the Australian Prudential Regulation Authority, or APRA, to act to slow the rate of growth of residential investor home loans.

“Likely action, known as macroprudential controls, include the reduction in the current 10 per cent annual growth limit on residential lending to something around 5 to 7 per cent.”

Morningstar also warned that APRA could raise the minimum serviceability buffer “to 3 per cent from 2 per cent” and lift the risk-weighted capital floor for new residential investor borrowers holding multiple properties to 75-100 per cent.

[Related: Analysis: APRA action and bank rate hikes]

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