Low-doc loan rates to rise
NON-CONFORMING lenders are considering hiking interest rates on their variable rate home loans in the new year to offset the credit crunch.
Low-doc loan rates to rise
NON-CONFORMING home loan lenders are considering hiking interest rates on their variable rate products even further in the new year to offset the cost of the credit crunch, an aggregator says.
Many non-bank lenders rely on generating their funding from securitised debt markets, which are still frozen overseas and barely active in Australia as the cost of funding rises.
Non-bank lenders like Liberty Financial, Pepper Home Loans, RHG Group (formerly know as RAMS Home Loans Group) and Bluestone Group have already been forced to lift rates on their variable rate loan products independently of recent movements by the Reserve Bank of Australia.
Non-conforming mortgage aggregator BlueChoice managing director Jacque Aho said he had witnessed a big jump in the rates that non-conforming lenders charge, and indicated there could be more increases to come.
"There's a bigger gap between conforming and non-conforming loans - it's not just a matter of half a per cent or one per cent anymore,'' he said.
Without naming any companies, Mr Aho said some of Australia's biggest non-bank lenders had indicated to BlueChoice recently in meetings that they were reviewing their rates.
"In our meetings they've said they're actually bringing out a new matrix maybe at the end of January,'' he said.
Non-conforming lenders are under less pressure to keep rates low because they can't compete with traditional, big lenders like banks.
But even the major banks, which can fund part of their loan books from deposits, are thinking about passing the cost of the credit crunch onto their variable rate home loans customers.
National Australia Bank (NAB) and Commonwealth Bank of Australia have said such a move is "inevitable''.
The other three big banks - Westpac Banking Group, ANZ Banking Group and St George - have indicated it's a possibility.
NAB said on November 9 it would act "in the next month or two''.
Most market watchers still expect all the banks to move in line with NAB early in the new year.
"I think the credit market's deteriorated to the point where most of the players would do the same thing - and they'll probably do it early next year,'' Merrill Lynch lead banking analyst Matthew Davison said.
However, Mr Davison's counterpart at Credit Suisse believes there is still a possibility the major banks will hold steady.
"There's been lot of sabre rattling and rhetoric, yet no one seems willing to go the distance,'' he said.
"And that's understandable given there's a first mover disadvantage.''
Meanwhile, BlueChoice claims it will be Australia's first mortgage aggregator for non-conforming loans when it opens for business in February.
Aggregators offer a selection of mortgage products from different lenders to brokers and also provide technical and compliance support.
According to Mr Aho, small brokers who might only write a few non-conforming loans a year have been ignored by non-conforming lenders since the start of the credit crunch.
"Because their funds are running a bit short, they're being picky and they're not dealing with just anybody,'' he said.
Mr Aho said BlueChoice will service small brokers by offering non-conforming loan submissions and support to help them understand how to best write non-conforming loans.
He said almost 70 per cent of non-conforming loan applications are rejected because they are not filled out properly.