Australian Property News

Investors find fresh leverage to negotiate lower rates

Posted on Wednesday, December 16 2009 at 11:46 AM

Investors may be able to negotiate a lower interest rate with their lender using the leverage of newfound differences in standard variable rates, according to Mortgage Choice senior corporate affairs manager Kristy Sheppard.

Australia's big banks took different approaches in the wake of the Reserve Bank of Australia's (RBA) latest 0.25 percentage point interest rate rise in December.

While NAB stayed in line with the RBA, increasing its standard variable rate by 25 basis points, the other big banks announced larger increases.

Westpac lifted its rates 45 basis points, the Commonwealth Bank and St George raised their rates 39 basis points and ANZ lifted its rates 35 basis points.

Anecdotal reports suggest investors with substantial borrowings from lenders other than NAB have been able to cite NAB's lower competing rates and successfully negotiate an extra 0.2 per cent discount off their existing interest rate.

Sheppard says lenders will drop their rates in certain circumstances to keep a valued customer.

"In terms of funding costs, it's more beneficial for a lender to keep an existing borrower by offering an incentive to stay than it is to attract a new customer," she explains.

"In light of lenders raising interest rates outside of the RBA's cash rate cycle we would expect, and hope, that Australian borrowers are looking at their options."

"It's always in customers' best interests to shop around for the loan that's best suited to their lifestyle and needs, and with competition returning to the mortgage market undoubtedly some savvy borrowers are putting the pressure on their existing lender. As with many things in life, if you don't ask you won't receive!"

Jane Slack-Smith, principal of Investors Choice Mortgages, confirms it's easier to negotiate as an existing customer than as a new borrower.

"In the last six months the negotiation on discounts has been very, very difficult, especially when establishing a loan," she says.

"However once you're with a lender, if you believe that there's a genuine opportunity elsewhere with a lower rate then it is possible to call your lender and ask if it's possible for them to do better for you. No harm in asking."

Slack-Smith says investors need to know what their true alternatives are if they're going to try to negotiate with their lender.

"If you're going to move lenders be aware of exit fees, especially break fees with fixed rate loans, and the fact that some lenders' policies may mean you don't actually qualify for a loan with them."

"So if you're willing to play the rate game make sure you know what your options really are."

Sheppard agrees borrowers need to consider exit, discharge and establishment fees when deciding whether it's more beneficial for them to switch products than to stay put.

She says investors who have higher loan amounts "may be more likely to sway their lender and are more likely to benefit from a reduced rate".

"Most lenders will offer some sort of concession, depending on the borrower's loan type, so it's definitely worth anyone's while to enquire and do their best to negotiate."

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