New Lender Cuts Rate To 6.99pc
The Sunday Age
Sunday February 2, 1997
MORTGAGE rates are set to drop again with a new lender offering a 6.99 per cent loan from tomorrow.
It is the lowest true variable rate in a generation, undercutting the banks by 1.25 percentage points - a saving of $80 a month on a $100,000, 25-year mortgage.
The new lender - a joint venture between real estate group The Professionals and Melbourne-based home lender Finance Express - represents one of the biggest threats to the banks since the meteoric rise of discount lender Aussie Home Loans, itself charging 7.49 per cent.
The full-service loan is akin to the banks' 8.25 per cent rates - including redraw, early repayment and split facilities - according to Tony Hargreaves, general manager of The Professionals.
Over the life of a loan the savings add up to $25,000, he said.
It even undercuts the banks' no-frills basic loans of about 7.3 per cent and in some cases matches the supposedly heavily discounted "honeymoon" rates offered by the banks for the first year to attract new borrowers.
Adding to the banks' embarrassment, the slashed rate comes as some lenders have only just passed on to their borrowers the 0.5 point official interest rate cut from early December.
The banks have also been lifting fees to make up for the tougher competition and lower profit margins they face in home lending.
Mr Hargreaves said The Professionals' loan would be profitable although the margin would be thin. The group is relying on attracting a large number of borrowers quickly. "It is based on volume," he said.
Indications are the rate will be snapped up by home seekers and also those who want to refinance their loans from more expensive lenders. It is believed the national co-operative of real estate agents conducted a three-month trial of the rate in southern Sydney and attracted strong interest.
The loan is only available through the 500 offices of The Professionals, but Mr Hargreaves said this did not mean buyers had to buy a home through the real estate group.
"The first point of contact is with us. We refer you to our mobile lenders. You might even be buying a house through a different agent," Mr Hargreaves said.
It means the new lender will be able to speak to potential borrowers before they even talk to a bank or traditional lender, offering the group a natural advantage.
Mr Francis Galbally, of Finance Express Home Loans, said the low rate was not anticipating another official cut by the Reserve Bank, which has been widely tipped.
"This is not opportunistic because there might be a rate cut. We've been working on this for months," he said.
But he added another official cut would reduce the rate further.
"The rate will go up and down with official rates."
There is no application fee for the loan, but borrowers have to pay legal and valuation fees. There are no ongoing fees. But mortgage insurance has to be taken out if the loan-to-valuation ratio exceeds 75 per cent, common to other lenders.
PAYING IT BACK.
The cost of a $100,000 loan over 25 years.
Rate Monthly
repayments
The Professionals 6.99 $699
Westpac * 7.29 $718
Aussie Home Loans 7.49 $732
National 8.25 $787
*No frills loan only.
© 1997 The Sunday Age