Cheap Loans Squeezed Out
Sydney Morning Herald
Wednesday October 29, 1986
THE ANZ Bank has quietly withdrawn its special 14.85 per cent home loan rate for people borrowing less than $35,000.
While a variety of conditions applied to the loan the rate was 0.65 percentage points below the standard mortgage rate of 15.5 per cent, and so provided borrowers with a useful saving.
A spokesman for the bank said the move reflected the upward pressure on the bank's costs of funds, which had squeezed the margin between its borrowing and lending rates.
While professional interest rates have dropped in recent weeks, due partly to overseas buying interest in Australian fixed interest securities, this is unlikely to have any impact on home loan rates.
In contrast it has already pushed down the rates paid by cash management trusts, a development which is once again confronting investors with the dilemma of whether or not to shift funds from short to longer term securities to "lock in" the high rates.
Two weeks ago the best cash trust rate was 17 per cent, paid by Tricontinental Multitrust. Today this trust has slipped back to 16.16 per cent while the top rate, now being paid by BT, is only slightly higher at 16.31 per cent.
A similar trend has been shown by the Government Insurance Office's cash and deposit rates which in mid-September were hovering around 17 per cent for both at call and three month terms. Today they are are 15.25 and 15.6 per cent respectively.
Although these rates, and those of the cash trusts, are still attractive it is likely that most trusts will in coming weeks continue to reduce the rates they pay due to the drop in money market rates - especially for bank bills.
These are short-term loan securities issued by companies and guaranteed by a major bank. In most cases they provide the main investments for the cash trusts.
At present, 90 day bank bills are paying just over 16 per cent compared to more than 18 per cent six weeks ago.
Money market forecasts in the past week have agreed that the next few months should see more cuts.
According to David Jarman, senior economist with big stockbroker J.B. Were& Son, the expected downward trend in short-term rates will be accompanied by further falls in yields on Federal Government bonds. Citibank economist David Erskine and investment bank Dominguez Barry Samuel Montagu's latest Market Comment agree with this.
Thus investors should consider shifting some short-term funds into longer dated securities.
The main choice is government securities, finance company debentures, longer-term bank or building society deposits, and mortgage trusts.
In the case of government securities the best deals are being offered by semi-government authorities.
Besides the Power Bonds of the Victorian State Electricity Commission, which were discussed last week, other state and semi-government securities on offer include NSW Premier Bonds, Queensland Electricity Stock and the SAFA bonds issued by the South Australian Government Financing Authority. These securities offer 14- 15.25 per cent depending on the term.
THE RATES
WHAT YOU GET %
Statement savings accounts
For $1,000 deposit:
Banks 9-11.5
Building societies 7-9
Credit unions 7.5-11
For $5,000 deposit:
Banks 10.75-11.5
Building societies 11-11.5
Credit unions 7.5-13
Savings investment accounts
For $1,000 deposit:
Banks 9-12.5
Building societies 10-12.5
Credit unions 9.5-12.5
For $5,000 deposit:
Banks 10-12.5
Building societies 10-12.5
Credit unions 9.5-12.5
STATEMENT savings accounts pay interest on the minimum monthly balance and the funds are available without giving notice (at call). Examples are Westpac's Advantage Saver account and the Commonwealth's Keycard. Savings investment accounts pay interest on a minimum daily balance. In many cases at call after 30 days, but notice of withdrawal varies.
Other deposit rates
Bank & b/soc passbook 3.75-7.5
3 yr finance co debs 14.25-15.00
Cash mgt trusts 14.47-16.32
5 yr govt sec 13.60-13.99
FINANCE company rates apply to debentures which pay interest quarterly and which are issued by companies associated with a major bank. The rate for government securities is the yield to redemption.
WHAT YOU PAY %
Home loan (up to $60,000)
Banks 15.50-17
Building soc 14-15.5
Credit unions 17-19.8
Personal loan
Banks 18-22
Building soc 18.5-19.5
Credit unions 18-22
Credit cards
Banks 18-22.2
Building soc 18-19
Credit unions 16.8-19.8
© 1986 Sydney Morning Herald