Why are some lenders cutting variable intro rates but are increasing fixed rates?


In August, one of Australia’s biggest lenders slashed its introductory variable rates by 0.20% for both owner-occupiers and investors with principal and interest home loans.

This announcement reduced the lender’s lowest variable rate loan to a tick below 2% for two years. After this period, the mortgage reverts to an interest rate closer to 2.5%.

Yet confusingly, the same lender increased its 4 and 5-year fixed rates by 0.30%.

Craig Betalli, Senior Finance Specialist at OurBroker, Raine & Horne’s financial services division, says, “In my view, moves by lenders to slash introductory rates while increasing fixed rates is purely a marketing ploy.

“Sure, there are pressures on the fixed-rate market which is playing out through fluctuating interest rates on interest only and PI fixed-rate loans for investors and owner-occupiers.

“Alternatively, some lenders are increasing their fixed rates primarily as a profit measure but are still offering competitive rates when negotiating with potential new customers.”

According to Craig, the introductory variable rate loan in question is a basic loan product with no bells and whistles, such as a mortgage offset. The overriding strategy is to present the customer with a teaser rate, which attracts their home loan business and ultimately their savings and transactional banking needs.

Also, as the introductory rate is variable, the client will pay more if interest rates increase. Craig questions, “So why wouldn’t you take an equivalent or lower fixed rate offered by other lenders?”

Moreover, the offer announced by the big bank is also only available to customers who have a Loan to Value Ratio (LVR) under 70%, which means they have a bigger deposit or more equity for collateral. “So, in this instance, the lender is looking for less risky customers, which means they’ll have lower funding costs to manage this new business,” Craig explains.

At the end of the day, when it comes to home loan offers, it’s a case of buyer beware, and therefore it’s essential to talk to someone who understands all facets of the mortgage market, such as a finance specialist from Our Broker.

To get the lowdown on the mortgage market and the most suitable mortgage whether you’re a first homebuyer, upgrader, or investor, contact OurBroker on 1800 913 677