PRODUCT RANKING -- Construction loans

With construction activity on the rise, construction loans are becoming more commonplace - but which lender has the best product?

Construction mortgages remain a key part of the broker arsenal.

In recent months, the federal government has provided much need stimulus to the construction sector in a bid to boost the supply problem that is crippling the industry.

And this strategy would appear to be working. House construction is on the rise - contributing to an expansion in overall construction activity.

In fact, according to the Housing Industry Association, construction activity has expanded for the last three consecutive months.

HIA's Construction Index sat at 53.2 index points in May - above the 50 level, which indicates expansion in activity in the sector.

With construction activity now firmly on the move, it is important for brokers to have an array of competitive construction products at their fingertips.

However few lenders remain totally committed to the construction loan market, with non-banks such as FirstMac withdrawing from the market altogether.

That said, there are still a number of lenders that offer competitive products.

This month, The Adviser again called on its broker panel and data analysis partner Pisces to rate and rank Australia's leading construction mortgages.

In ranking the nation's six leading construction home loan lenders, we applied a robust process that considered not only the product specifics - such as interest rates and discharge fees - but also broker perception, including their thoughts on servicing times and overall policy.

The methodology engaged was consistent with previous rankings to produce a holistic view of lenders' products.

PRODUCTS

The six construction mortgages for consideration in this ranking included:

WESTPAC - Rocket Repay Home Loan

CBA - Standard Variable Rate

ANZ - Standard Variable Rate

ST GEORGE - Standard Variable Rate

BANKWEST - Lite Plus Home Loan

HOMESIDE - Home Plus Home Loan

STANDOUT PERFORMER

Both CBA and ANZ performed strongly in product metrics and broker perception.

For the second consecutive ranking, CBA managed to top broker sentiment, beating out the other banks to lead both the policy and service categories.

The bank also performed strongly against Pisces' product metrics.

There's no dismissing CBA's strong market share as a key driver for the bank's success in the ranking.

That said, it's ‘big four' rival, ANZ, also managed to perform well across both assessment areas.

ANZ took out the second position for product metrics and third spot for broker sentiment - elevating it to equal first alongside CBA in the overall ranking.

In an interesting turn of events, Homeside also managed to tie for equal first position with CBA and ANZ after performing strongly across product metrics.

The lender topped the field in interest rates and total fees. But despite Homeside's strong performance in the product categories - where it ranked number one overall - the lender failed to score well with brokers in support and service.

POLICY OVER PRICE

According to Pisces' content manager of mortgage business, Sandra Nguyen, policy was the driving factor behind the loans and their subsequent rank.

"We observed that the total cost of the products varied significantly and typically the products that were more affordable had more restrictive policies with respect to construction," Ms Nguyen said.

"It would appear that product differentiation with construction loans is more policy-driven than price- driven."

The scenarios applied by Pisces included assessing products on two accounts: $450K and $650K at an LVR of 85 per cent.

Bankwest didn't perform well in either scenario, thanks in large part to its higher interest charges.

Meanwhile, all five majors managed to perform very strongly in both scenarios on the back of the cheaper rates.

As expected, Homeside outshone all the other banks to take first position in both scenarios.