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Why banks are favouring certain borrowers

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The Reserve Bank's wait-and-see approach to interest rates has now officially extended into its ninth month after its unsurprising decision to leave the cash rate steady at 2% yesterday.

But the bank's flat line hasn't been replicated in the home loan market, with sizeable discounts now on the table for the "right" borrowers.

As global markets continue to churn and analysts remain nervous about what lies ahead, banks are actively trying to rebalance their books in favour of stable borrowers.

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Data from RateCity.com.au shows that owner occupiers with a decent deposit are being offered rates that are up to 0.55% lower than those for other mortgage holders.

Risk-based pricing is nothing new but the renewed emphasis on it is likely to be a focus in 2016.

For example, the five cheapest rates on our site this week all require a loan-to-value ratio (LVR) of 70% or less.

One lender, Mortgage House, is offering the extremely competitive rate of 3.89% in return for an LVR of 40%. This product is clearly aimed at luring in savvy refinancers who already have a hefty chunk of equity in their loan.

But if the banks love stable customers, then it's fair to say they are completely enamoured with new ones. Our research shows that about 20 lenders have reduced their variable rates by as much as 0.45% if you are bringing them new business.

While some of these cut-price deals can be worth considering, you need to have your wits about the longer-term benefits of specials, and read the fine print fastidiously. Chances are your mortgage will last for a lot longer than the terms of any discounts being offered.

On the other side of the divide, investors are still feeling the pinch as the banks continue to put the squeeze on them with rates as much as 1.44% higher than what's on offer to owner occupiers. This hit to their bottom line is turning venture capitalists away in droves, resulting in a $2.1 billion drop in investor lending since July.

There's no question differential pricing is responsible for some of the heat coming off the housing market, particularly in Sydney and Melbourne. It's also taken a weight off the RBA's shoulders, giving it just enough breathing space to cut rates in the future if the economy doesn't hold up as well as it hopes it will.

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