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Negative rates a boon to mortgage refinance for Japan's Internet banks
[TOKYO] Japan's shift to negative interest rates is driving a loan refinancing boom, with local internet banks seeking to grab customers from bricks-and-mortar rivals in the country's US$1.6 trillion mortgage market.
While it remains to be seen whether the Bank of Japan's controversial move will spur new home purchases or loosen consumers' purse strings, both large and small lenders are seeing a marked jump in the number of mortgage refinancing applications.
Growth has been particularly strong for banks with low overheads who are able to pass on a larger part of the rate cut to customers, notably Internet banks.
SBI Sumishin Net Bank said the number of applications for mortgage refinancing jumped by three times in February from the previous month, following the BOJ's late January announcement. It said it was seeing the faster pace of growth in March. "It is far more than we had expected," said Kensuke Shimai, general manager at the bank's private mortgage business department.
Without costly branch networks and with smaller headcounts, SBI Sumishin and other Internet banks typically offer lower mortgage rates than institutional rivals.
SBI Sumishin's floating rate for refinancing in March is 0.565 per cent. Comparable rates for Japan's biggest lenders are 0.625 per cent.
Traditionally, mortgages for first-time borrowers are dominated by established lenders with strong ties to residential property developers, through whom many home buyers are introduced to banks.
But for refinancing, borrowers are more inclined to shop for the cheapest rates, in many cases on the Internet, where online lenders say they have an advantage.
Even before the BOJ's introduction of negative interest rates, Japan's mortgage rates had been low. Still, a growing number of borrowers are trying to capture a small reduction in mortgage rates, said Kazuhiko Kato, general manager at Sony Bank's loan business department. "We are seeing many clients who are going through their second or even third refinancing," he said.
Sony Bank, part of the consumer electronics giant, started its mortgage business in 2002 and now has a loan book of about 1.2 trillion yen (US$10.68 billion).
Lenders say one of the biggest factors holding back refinancing customers is the time-consuming process of obtaining mortgages, which includes trips to bank branches in the case of conventional lenders.
Jibun Bank, an internet joint venture by Bank of Tokyo-Mitsubishi UFJ and telecom company KDDI Corp, started a mortgage business in December that allows borrowers to do the entire process by smartphone.
The bank estimates the Japan's outstanding mortgage loans to be about 180 trillion yen, about one-third of which have never been refinanced and have 10 years or more remaining to be paid down. "As a latecomer, we don't have outstanding mortgages under threat to be taken by rivals," said Toru Yoshikawa, executive officer at Jibun Bank. "The negative interest rate policy is tailwind for us," he said.