CBA opens the door to investors with small deposits

CBA has, this week, extended its home loan book to include investors with as little as 5 per cent deposit, provided these borrowers commit to paying principal and interest.

Previously, investors hoping to secure a home loan with the country’s biggest bank could only do so if they had a deposit of 10 per cent or more (loan-to-value ratio of 90 per cent or less).

These borrowers, however, will be charged significantly higher rates because of their deposit size. The lowest advertised rate for an investor with a 5 per cent deposit from CBA is 7.59 per cent.

CBA’s lowest investor rates

For borrowers paying principal & interest on CBA’s Wealth Package

Source: RateCity.com.au. Loans include a $395 annual fee.

Do the other big four banks offer loans to investors with a 5% deposit?

ANZ offers loans to investors with as little as 5 per cent deposit on both principal and interest, and interest-only terms.

CBA now lends to these investors but only on principal and interest terms.

Westpac offers loans with very small deposits to select investors, this can include certain medical professionals and certain loans that are cross-collaterised with an owner-occupier home.

NAB does not offer loans to investors with deposits of 10 per cent or less.

Big four banks: lowest advertised variable rates for investors with a 5% deposit

Note: select investors may include medical professionals or certain cross-collaterised loans.

Lowest rates for investors with a 5% deposit

Source: RateCity.com.au. Note: lowest rates listed are out of those lenders advertising 95% LVR loans. Excludes introductory loans.

Investors currently less likely to fall into arrears than owner-occupiers

The latest APRA Quarterly Property Exposure Statistics for the June 2023 quarter shows owner-occupiers have the highest proportion of loans in arrears, while investor interest-only loans have the lowest.

This is the reverse of two years ago, when investors had the highest proportion of loans in arrears.

‘Non performing’ loans as a proportion of credit outstanding according to loan type

Source: APRA Quarterly Property Exposure statistics, June 2023. Note: based on the value of term loans.

RateCity.com.au research director, Sally Tindall, said: “CBA is opening up its books to investors with as little as 5 per cent deposit, but the offer comes with a couple of caveats.”

“These borrowers must commit to paying principal and interest, something many investors are hesitant to do, and be willing to pay a higher interest rate,” she said.

“The bank is likely to have recognised the strength of investors in the current climate and incredibly tight rental market.

“Investors are typically seen as risky borrowers, but the latest APRA data suggests otherwise. However, if they are willing to enter the market, they need to be prepared to pay higher rates.

“Most investors have the option of increasing their tenant’s rent annually, to help cover the cost of rising mortgage repayments, an option owner-occupiers don’t have. They can also typically claim the interest charged on their loan as a tax deduction.

“With vacancy rates at historic lows, investors are unlikely to be struggling for a tenant – a far cry from just two years ago when many investors were offering tenants reduced rents to help them get through lockdown.

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