PRODUCT RANKING -- Line of credit mortgages

With investment activity running hot Mortgage Business puts the leading line of credit loans through their paces.

Line of credit mortgages are popular with Australian borrowers due to their flexibility as well as depth of features.

Borrowers see line of credit loans as an effective mortgage reduction tool; the product is also held in high esteem by investors looking for flexibility and the speed to move quickly to capitalise on market opportunities as they arise.

With investors now a key target market for many brokers, interest in investment loans is sure to increase as buyers look to take advantage of current continued low vacancy rates, strong demand for rental properties as well as sound potential for capital growth in many markets.

In this regular product ranking we take a look at line of credit mortgages, weighing up not only the tangible product metrics but also broker perception towards different lenders’ offerings. Considering the data generated it is clear that most lenders are competitive in particular product areas, for example fees, interest rates and loan features, however there was a key performer that collectively outclassed other lenders across all metrics.

PRODUCTS THAT UNDERWENT REVIEW

• ANZ – Equity Manager

• CBA – Line of Credit

• Homeside – Peak Performance Equity Mortgage

• RAMS – Line of Credit Pro Pack

• St George – Portfolio Loan

• Suncorp – Asset Line

• Westpac – Equity Access Loan

CLOSE COMPETITION

The methodology to assess these products was consistent with previous product rankings. This involved an appraisal of the products, taking into account loan features like discharge fees and interest rates, by Pisces.

Broker sentiment was also assessed, looking specifically at broker support, product availability, servicing times and overall policy.

Considering product specifics, Vincent Turner, general manager of Pisces, says there was a considerable amount of difference in how products ranked in terms of their fees, highlighting that the size of the loan amount influenced how package discounts were applied at different loan levels.

Mr Turner also says that there was differentiation in the features available on many of the products, “most notably the ability to fix [interest rates] on St George’s product”.

Overall the spread between interest rates was tight – Suncorp’s product was lowest at 5.60 per cent; RAMS’ was highest with 5.89 – Mr Turner says, as well as general policy.

“Discharge penalties were also a big differentiator [in the ranking], and were probably the key issue with loans that rated poorly,” he says.

For example, on a $250,000 mortgage over a 30 year term, discharge fees ranged from $0 for Suncorp’s Asset Line upwards to $2,500 for RAMS’ Line of Credit Pro Pack.

Overall total fees also fluctuated considerably, with Homeside’s $6,474.50 the lowest and ANZ’s $15,720 highest.

Interestingly, there was little disparity in broker perception towards line of credit mortgages.

Sentiment towards how the products ranked by way of overall policy returned very similar results, for example, with most brokers giving all products a four out of five for this metric, highlighting just how close the products are when viewed as a collective offering.

Although it appears that all products could be improved. Just CBA and ANZ were given the top score by brokers for their broker support and service attributes.

Notwithstanding the need for improvement, Westpac ranked highest overall for its line of credit mortgage. Westpac has now topped all three product rankings undertaken by Mortgage Business (other rankings included basic products and pro packs). While broker perception of Westpac’s products has been continually strong, the ranking is weighted towards actual tangible product metrics, indicating that the makeup of Westpac’s products is consistent – which is matched with sound broker servicing and support.

The gap between Westpac and ANZ, who came in at the number two slot, was considerable, however the margin between ANZ, Suncorp, who placed third, and CBA, fourth, was tight.

Looking at the overall ranking for line of credit mortgages it is clear that there is little difference between the products however some lenders have specific offerings that will appeal to particular brokers’ clients. Brokers’ proposition to break down, explain and match product specifics will therefore be a key asset for borrowers seeking a line of credit mortgage.