Home loans more expensive and harder to get

In a reminder of the trend toward a more conservative approach to credit mortgage providers are reducing discounts on interest rates, making redraws harder to get and restricting access to low documentation loans.

Commonwealth Bank last week notified mortgage brokers of a reduction in the so-called special discount of 70 basis points on most home loans to 50 bps on loans of more than $250,000. The new pricing will apply from late this month.

CBA has offered this discount for around two years in line with the pricing tactics of many lenders who have relied on the promotion of the discount on standard rates, rather than the rates themselves, as a pricing feature.

The bank will still offer discounts of 60 bps on loans of more than $350,000 and 70 bps on loans of more than $750,000.

One major lender is still taking an aggressive approach to pricing. Through two subsidiaries Westpac is funding home loans at large discounts to advertised standard rates.

St George is offering discounts of 150 bps on loan refinancings while Rams Home Loans is offering a discount of 100 bps.

National Australia Bank is taking a different tack to manage credit risks. In late January NAB changed the rules relating to the availability of redraws on common home loan options.

NAB now requires mortgage customers to in effect pre-fund the following month's interest payment when calculating the availability of a redraw. So while the minimum redraw remains, notionally, at $2000 in practice minimum redraws are increased by the amount of a monthly loan payment.

Many lenders will have to curtail the availability of low doc loans, a product line beginning to exhibit well above average levels of arrears.

From next week QBE Lenders Mortgage Insurance will limit low doc loans to self employed borrowers only. To reflect the change in policy QBE will refer to low doc loans in agreements with lenders as "self certified".

Low doc loans were originally marketed in the early 2000s to self employed borrowers, and at the time with a premium interest rate. The lending boom saw low doc loans become a more common option, though lenders began restricting availability two years ago.