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Mutual lender the latest to hike interest rates

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Lucy Dean 4 minute read

An Australian mutual bank has joined the ranks of those hiking rates on interest-only loans, and has reduced the maximum component of interest-only loans to just 50 per cent.

Teachers Mutual Bank has raised rates on interest-only loans by 40 basis points for 1- to 5-year terms across both owner occupier and investor loans. The changes are also effective across UniBank and Firefighters Mutual Bank.

As of Tuesday, 30 May, rates for interest-only (IO) owner-occupier loans start from 4.34 per cent (5.22 per cent comparison) running to 5.01 per cent for 5-year loans (5.21 per cent).

As for investor loans, rates for 1- to 5-year terms have risen to between 4.64 per cent (5.25 per cent comparison) and 5.31 per cent (5.33 per cent comparison).

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The hikes reflect pressure from the Australian Prudential Regulation Authority (APRA) to limit new interest-only lending to 30 per cent.

Teachers Mutual Bank has also announced changes to its lending policy for loans with IO repayments across both fixed and variable rate products, applicable to both owner-occupiers and investors.

Notably, it has set a new minimum of 50 per cent principal and interest (P&I) for all home loan lending, bar loans for construction of an owner-occupied home. As such, the maximum IO component of the loan is 50 per cent. In addition to this, cash out is now not allowable on any loan with an IO component.

These changes mean that where an applicant has total borrowings of $300,000, the minimum P&I component is $150,000, resulting in the borrower needing two loans; a minimum of $150,000 on P&I and maximum of $150,000 on IO.

Loan applications conditionally approved before the changes but not settled will continue with the current approval based on the policy prior to 30 May 2017. However, for applications exceeding the 90-day approval period which require reassessment, the new policy will apply

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The clamp down on interest-only loans came in March and has since then seen the big four banks, as well as smaller banks like AMP Bank and aggregators such as Connective Home Loans, adjust interest rates and loan-to-value ratios (LVRs) accordingly.

 [Related: Bank raises rates, sets sights on brokers]

Mutual lender the latest to hike interest rates
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