Melbourne houses
Image – Canva
  • Almost one in two lenders are offering borrowers with significant deposits/equities discounted interest rates
  • On average, the rate is 0.21% lower for borrowers with a 40% deposit/equity
  • Comes as property prices are expected to fall by 10% to 20% in most markets

Close to one in two lenders are pricing for risk in the current interest rate rise cycle by offering borrowers with large deposits or high equity lower rate loans.

The Canstar research has found that almost half of borrowers with a 40% deposit or equivalent equity in their property will enjoy interest rates that are on average on 0.21% below the rate being paid by borrowers with a deposit half the size.

The news comes as the Reserve Bank yesterday raised the cash rate to 1.85%.

On top of this, nearly a third (29%) of lenders are offering borrowers discounts who have a 30% deposit or similar equity in their property, although the average discount is only about 0.13%.

“With the outlook for continued economic growth clouded in the face of rising interest rates, it is not surprising that lenders are competing harder for lower risk borrowers,” said Steve Mickenbecker, Canstar’s finance expert.

“Property prices are widely expected to fall by 10 percent to 20 percent, which would see 80 percent loan to value ratio loans too close for comfort to zero equity.

“Lenders are looking for loans where there is a greater buffer for falls in property prices and almost half of them are rewarding these borrowers with lower interest rate offers.

lowest variable home loan rates
Source: Canstar.

“Having enjoyed strong house price increases over the last couple of years, borrowers who have been in their houses for several years now own a healthy share. There may be a strong case for borrowers in this position to open up a negotiation with their lenders for a rate reduction.

Mr Mickenbecker noted that even after allowing for the high equity discounts, there are still likely to be better rates available for borrowers.

“With the lowest rate available still 0.69 percent below the average for lenders who offer a discount for 60 percent loan to value ratio loans, the rewards are compelling enough to consider making the switch.”



You May Also Like

Thinking of borrowing for a new home? We decode the home loan lingo and explore a common mistake

We take a look at everything from principal and interest to rates and more.

Mortgage stress saw a consecutive decrease across Australia despite high interest rates

Australia’s interest rates are currently at an eye-watering 4.35%, but levels of mortgage stress eased throughout November.

NHFIC and CBA unveil new trends and insights into first home buyer market

The analysis found the equity positions of HGS participants appeared to be growing in line with long run averages.

Fixed rate home loans begin to expire, but very few Australians are behind on repayments

Listings numbers are up, but distressed sales are not the primary driver.