Are investors better off with smaller banks?

New data from loan comparison platform YourMortgage.com.au has revealed that none out of the top 10 best interest rates on offer to investors right now are from the Big 4 banks, suggesting that investors may be better off looking for a loan outside of the majors.

The data, pulled from the website’s vault of more than a thousand home loans, showed the majority of the top-10 best interest rates come from neobanks, credit unions, smaller banks, or non-bank lenders.

Sarah Megginson, managing editor of YourMortgage, said that when applying for a home loan, people should review the different finance solutions available, rather than settle for what their bank currently offers.

“Our data shows that none out of the top 10 best interest rates on offer to investors right now are from the Big 4 banks and what this really demonstrates is that it pays to shop around,” Megginson said. “Investors often have really unique needs when it comes to finance, with complex financial arrangements, which means cookie-cutter or general solutions are not always the right fit.”

Many investors are homeowners, and as their financial situations become more complicated, they may tend to turn to their existing bank for a loan, thinking they can get a loyalty discount or have an easier time being approved.

“In fact, if you're a new customer, you might even have access to a cheaper rate,” Megginson said. “Every bank has their own policies, interest rates, and criteria and they apply to you whether you've been a customer for 25 years or you're brand new.”

Raj Ladher, home loan specialist at Your Mortgage Broker, said policies vary considerably across lenders, especially during this COVID-19 period.

“All lenders have their own borrowing capacity calculator which determines the amount of loan you are eligible for,” Ladher said. “In addition to this, lenders will calculate your income differently, especially if you earn commission, bonuses, overtime, etc. This is evident even more for investors as the way lenders calculate your rental income and any other financial institution (OFI) debt you may have can change your borrowing capacity.”

With the Australian Prudential Regulation Authority introducing a maximum number of loans a lender can have for investors and on interest only, lender appetites can change for investor and interest-only subject to how their loan book is at any given time.

“Speaking to a mortgage broker with a range of lenders will allow you to understand what your eligibility is not just with one lender but with over 30 which include the majors, non-bank, and specialists,” Ladher said. 

Below is the list of top-10 most competitive investment loans currently available:

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Since 1995, YourMortgage.com.au has been offering daily updated interest rate information to Australian home and investment borrowers to assist them in finding the loan that best suits their needs.

The database includes daily updated interest rates, fees and charges, and features more than 1,400 Australian home and investment loan products from over 80 lending institutions. 

In addition to daily interest rate information, YourMortgage.com.au provides interactive financial tools and calculators and weekly mortgage news.