Banks discriminating against property investors

I’m posting here in the hopes of gaining support to lobby the banks and the Federal Government to cease the discriminatory practice of charging higher interest rates on loans made for investment properties. Please join me in sending this letter to Banks, Members of Parliament, Real Estate agents, Newspapers and anywhere else which might be effective. Feel free to change some of the wording, sign your own name, whatever it takes, just spread the word!

In 2017 the Federal Government allowed banks to begin to charge higher interest rates to property investors and interest only borrowers. This was in response to the perceived increase in housing prices primarily in Sydney and Melbourne as a result of investor activity. The banks were given approval to charge these higher interest rates as a deterrent to further investor activity in those markets with the aim of reducing investor demand, and reducing pressure on property prices in those markets. Unfortunately this blunt tool was also used against investors in all property markets in Australia, even the many areas where investor demand was lacking, and no advantage was to be gained by anyone other than the banks, who benefited from the higher payments which property investors were required to pay on their mortgages. This unwarranted discrimination against property investors has continued to date, in spite of the fact that the previous “bubbles” in the Melbourne and Sydney markets have deflated.
Far worse than the initial imposition which property investors in general suffered from the introduction of this policy was the fact that the banks were allowed to apply this policy to investor loans which existed prior to the introduction of the new discriminatory rate increases. The banks took advantage of this opportunity by increasing rates charged on all property investor loans, even those which had been on their books for years. The investors who held these mortgages had no opportunity to factor these higher rates into their calculations when making decisions to invest, as at the time of their property purchases their interest rates were calculated fairly and equitably based on the system which presided at the time of their purchase, which did not discriminate against property investors. Increasing the interest rates charged on these pre-existing loans served no purpose other than further enriching the banks at the expense of property investors.
The result of the decision to allow the banks to discriminate against investors purchasing properties has been a burden of increased payments on mortgages by property investors right across Australia, a heavy burden which has caused many investors to struggle to meet their mortgage payments, while the only advantage gained has been by the banks who continue to charge these higher rates to all real estate investors, in spite of the fact that the original justification for doing so no longer applies.
Even in circumstances of normal environment and economic conditions, these discriminatory practices against property investors should have ceased. Now, in particular, with the economic conditions in Australia deteriorating rapidly as the the world and Australia have tipped over a cliff leading to recession, these draconian and discriminatory measures have no place. It is highly probable that property investors in Australia face a near term future of dropping, potentially plunging, house prices and rental returns as unemployment and uncertainty in the economy grow rapidly. As the yields deteriorate on their investments, property investors will struggle even harder with their loan repayments, and many are likely to default and be forced into liquidation. As Federal and state governments are currently in crisis management, urgently developing plans to save and stimulate the economy, it is also urgent that they address this situation, by repealing laws and guidelines which allow banks to discriminate against property investors by charging higher interest rates on property investor loans.
The Covid 19 virus crisis has created a situation which has prompted the Federal Government to call on landlords to drop rents on their properties, and the government is considering laws which allow tenants to remain in occupancy for up to twelve months without paying rent. Landlords, who supply vital rental accommodation, are as vulnerable to the developing economic crisis as are the tenants who occupy their properties. In this current economic crisis it is more important than ever that the discriminatory practice of banks charging higher interest rates on investor home loans must end immediately.

Tony Baldridge

 

Not a great cause imo, and even worse timing. Pass.

 

My understanding is banks are required to hold higher capital for investment loans.
Which are also higher risk of default in comparison to a residential owner occupied loan.
Both these make sense for a higher rate...

 

Plus investors get tax incentives to have investment properties and the interest paid is tax deductible, whereas for an owner occupier, the interest paid will generally not be tax deductible.

 

perhaps they are discounting for owner occupied loans.

 

Where were you 5 years ago? Bit late now!

 

"Not a great cause imo, and even worse timing" So you are happy for all investors to keep paying higher interest rates than owner occupiers? I'm curious if you can see any justification for this practice to continue. The only benefactors are the banks. I pay these higher rates on six investment properties. As far as timing goes, what could possibly be a better time to lobby for a cessation of being ripped off than during a financial crisis?

 

I argued it from the beginning. And as stated in my post, that was 2017. At that time there was some perceived justification, also as stated in my post, due to booming house prices in Sydney and Melbourne. Also, AS Stated, those conditions no longer exist.

 

These conditions existed prior to the rate increase imposed on investors by the banks. The justification for the increase at the time had nothing to do with these conditions. It was justified by the boom in Sydney and Melbourne house prices. That boom is dead.

 

It's standard business practice: if you can segment your customer base, you charge each segment according to what the market will stand. And as said above, with mortgages there's the risk element too.
Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are transacted at different prices by the same provider in different markets
Price discrimination - Wikipedia

 

This is a forum largely made up of property investors, and the support level is at 'crickets'.

Pick battles you can win. Spend more time studying the market to make good investments.

 

My interest rates were in the 9's, as in 9%+ for what seemed like a long time too. Even though that was a few years ago, it is very fresh in my memory. I currently have a loan at 3.79% and another loan at 3.53%. It seems ridiculous to complain about that to me.

 

Hi Brady,
I heard from Ben Kingsley on PCouch podcast that investors actually had a lower default rates compared to o/o. He would likely have access to more data than most but I couldn’t find any data either way.
Are you aware of any internal CBA metrics that indicate which is correct or just a suspicion that Inv is higher?
Thanks

 

Banks also charge smaller companies a higher interest rate than larger companies; it’s called pricing for risk and is an integral part of banking. In fact an integral part of every industry; if a project is risky, you seek a higher return.

 

No data, have heard it many times before from above. Not sure if that was their opinion also or fact. Either way it’s widely accepted that investment is higher than OO. Might be a case of INV discounting OO, who knows. But if INV was to drop would think has to come from somewhere...

 

Banks are a commercial business, they are there to make a profit, they made decisions based on risk, profitability and everything else that comes with a commercial institution

 

Hi Rolf,
Those % you quoted, are they for IP loans only or are they combined total for all your loans?

Lower than national averages. If IP then matches BK data as against Brady’s.
Hmm.

thanks