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Lender hikes rates to ‘improve processing times’

A non-major has increased mortgage rates for both new owner-occupier and investor borrowers by up to 25 bps, in a bid to enhance turnaround times.

In a reversal of the current trend, Citi has announced mortgage rate hikes of up to 25 bps across both its variable and fixed rate products for owner-occupiers and investors, effective for new loans submitted from 4 December.

For owner-occupiers:

  • variable rates have increased by up to 23 bps, now starting from 3.06 per cent (3.11 per cent comparison rate); and 
  • fixed rates have increased by up to 25 bps, now starting from 2.89 per cent (3.50 per cent comparison rate).

For investors:

  • variable rates have increased by up to 10 bps, starting from 3.29 per cent (3.34 per cent comparison rate); and 
  • fixed rates have increased by up to 20 bps, now starting from 3.09 per cent (3.69 per cent comparison rate).

According to the bank, its decision is designed to improve processing efficiencies.

“Citi is making this change to ensure we can prioritise existing applications and improve our processing times while still offering a competitive rate,” Citi told Mortgage Business.

This comes less than a month after the bank announced it would suspend pre-approval applications, designed to ensure it dedicates its resources towards “assessing live transactions”.

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“This decision will help us to better support our business partners and clients within a more efficient time frame,” Citi said following its decision.  

Citi is not the only non-major to revise its home loan product offering to enhance turnaround times, with Auswide Bank announcing last month that it would also cease accepting pre-approval applications until further notice.

“We do understand the importance and value for a customer to be able to enter into the property market with the confidence our fully assessed pre-approved loans provide,” the lender told brokers.

“However, we are also conscious of our obligation to our brokers that place their confidence in us to deliver the right customer experience to their clients who have committed to purchases and/or need to refinance their current facilities to achieve their financial objectives.”

Citi’s latest changes come less than a week after the head of Macquarie Group’s Banking and Financial Services (BFS) division, Greg Ward, stressed the competitive utility of fast turnaround times in his appearance before the House of Representatives standing committee on economics.

Mr Ward was asked to identify the bank’s “competitive advantage” in the home lending space.

In response, Mr Ward pointed to the bank’s processing times, which the bank had identified as a key area for growth by internal research conducted by the bank.  

Mr Ward revealed that after investing in improving its mortgage business, Macquarie’s turnaround times far outpaced the market average.

“The average turnaround times in the industry, when we looked at this, was 25 days for formal approval on a mortgage – that uncertainty was extraordinary for customers and mortgage brokers,” he said.

“We invested $300 million in a core banking system and a mortgage origination platform to help us turn that approval around much quicker. 

“For a lot of our customers, formal approval happens within three to five days. It may happen on occasion if they have a complete application with all the relevant information that were required, [approval] can sometimes happen on the same day.”

Macquarie’s BFS head added that borrowers are willing to incur higher interest rates on their home loan for faster turnaround times.  

“What we’re told from customers, and we saw this from our empathy interviews, ‘I would rather pay a little bit more for the certainty and speed of turnaround than wait and not know’,” he said.

Mr Ward told the committee that based on Macquarie’s research, borrowers would be willing to pay up to 10 bps more for a home loan product for timely approval.

“We find if your equivalent product is more than 10 bps more expensive than a bunch of other providers, then the customer is starting to think, ‘Maybe I should shop around’,” Mr Ward said.

According to Mr Ward, Macquarie’s investment in faster turnaround times has partly led to a sharp increase in its share of new mortgages settled in Australia.

“Our current share of the mortgage market is 2.3 per cent, but our share of current flow of new business [from the broker channel] is about 12 per cent, so we are growing very fast, and I think it’s that we are the best in market in terms of turnaround times for a mortgage approval,” he said.

[Related: Macquarie's market share propelled by turnaround times]

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