Lenders accused of offering misleading rates

The managing director of a prominent Australian brokerage has warned borrowers to be cautious about aggressively-priced home loan products with “phantom rates”.

John Kolenda of 1300HomeLoan says some lenders are aggressively pricing products to lure customers and boost their market share. But he's warned that these lenders subsequently increase the interest rates on their products once borrowers have signed up.

“Home loan customers have every right to be angry about these discounted ‘phantom rates’ that prove to be nothing more than an illusion,” Mr Kolenda said.

“The lenders are blaming cost of funding issues and changes to regulations for these out-of-cycle increases.

“But for the consumer, these are just confusing times, as the lending landscape has become such a minefield despite official interest rates staying at the record low of 2.0 per cent since May last year.”

Mr Kolenda said some of the questionable lending activity started last year when rates on investor loans increased by 20 to 47 basis points.

“We also had the out-of-cycle raises on home loan rates in response to rising funding costs and the additional costs coming in for the additional compliance and regulatory increase on reserves that the banks will have to have in place by end of June this year,” he said.

“But the bank wholesale funding costs did not rise enough to warrant the types of rate increases they imposed.

“I think there was an element of a profit grab done under the umbrella of higher regulatory and funding costs at the time when those decisions were made.”

Mr Kolenda said an indication of the current market volatility is in the bond market, where NAB recently estimated rates over the bank bill swap rate had increased by at least 30 basis points.

“This again raises serious concerns as to how lenders will react when it comes to their existing customers, especially when lenders are offering rates as low as 3.69 per cent for new business,” he said.

“We question the sustainability of that rate offer with the backdrop of current market conditions.”

[Related: Broker slams ‘misleading’ rate discounts]

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