Interest rates vary across state borders

BANKS and mortgage lenders are charging different interest rates in different states, with borrowers in some states repaying up to $15,000 more.

Economic and housing market conditions have led to interest rate variations across the country, and one analyst says the disparity will widen.

According to new research by mortgage broking company Hash-Ching, the average owner occupier mortgage issued in NSW in the past year had an interest rate of 3.96 per cent, compared with South Australia’s 4.06 per cent.

The gap widens when the Big Four banks are compared.

South Australians still paid the highest rate, an average of 4.08 per cent, while Victorians paid the lowest at 3.93 per cent.

“The repayment gap with a big-four mortgage between South Australia and Victoria is $15,400, based on a $500,000 loan over 30 years,” Hash-Ching spokesman Mandeep Sodhi said.

“Across all lenders, the repayment gap between South Australia, the most expensive, and New South Wales, the cheapest, is $10,400,” Mr Sodhi said. “Typically, the larger loans in Victoria and NSW get you a better discount as the lenders, particularly the Big Four, discriminate against smaller loans. However, the economy and the direction of the housing market in each state also play a part.”

In Western Australia, house price falls bottomed out during the year, so lenders started to offer lower interest rates in that state again.

“NSW is facing house prices going down, so we expect lenders to increase their interest rates on new mortgages in NSW.”

Competition between lenders was another factor in the rates gap, according to consultancy Digital Financial Analytics.

“There are multiple factors driving rates in various states, as well as overarching issues forcing rates higher,” Digital Financial Analytics principal Martin North said.

“Different rates are thanks to the type of loan, the geographic location, relative risks, the competition landscape and the bank’s own portfolio management.”

The highest-quality mortgages — those with low loan-to-value ratios — usually receive the biggest rate discounts to attract borrowers with big deposits.

“The bulk of these low-LVR loans will be in NSW and Victoria where refinancing is strong,” Mr North said.

“First home buyers are also most active in these states and, again, there are attractor rates for those [borrowers].

“Some banks are also avoiding perceived high-risk postcodes, like in high rise CBD or fringe areas, altogether.”