NAB CEO highlights broker role in refinance market

During a hearing for the House of Representatives standing committee on economics on Wednesday (12 July), as part of its review of Australia’s four major banks, Mr McEwan was asked about levels of engagement from borrowers on their home loan.

The committee asked why a proportion of borrowers (anecdotally estimated to be between half and a third of home loan customers) had not engaged with their lender over the past few years, despite interest rates having risen by 400 bps and what the bank was doing to engage with these “passive” customers.

In response, the CEO highlighted that a large proportion of borrowers may be on two or three-year fixed rates and so would not necessarily require re-engagement just yet, while others may be happy with their current offering.

However, he flagged that as 70 per cent of mortgages were coming through the broker channel, there had not been “any kind of steady stave off” in interest from borrowers.

“The question goes back to: are brokers engaging [with customers]? And yes they are. It’s in their interest to engage with their customers, just as it is with ours,” Mr McEwan said.

As such, Mr McEwan suggested that the real numbers relating to the proportion of borrowers not engaging with their lender were much lower than previously estimated.

The committee then asked NAB about the ACCC Home Loan Price Inquiry’s recommendation of requiring banks to annually prompt borrowers to review their home loans, to which the NAB CEO again flagged the role of the broker.

“Seventy per cent have a broker, with a broker prompting them [to review their mortgage] and there’s a big portion of those who are still on a fixed rate … so it would be interesting to rework the numbers and just see what [they are] because there have been some fundamental changes,” Mr McEwan said.

The bank was also asked about the difficulty of comparing home loan rates, with Rachel Slade, NAB’s group executive for personal banking, agreeing that there could be a better solution.

“I think actually, probably over the last couple of years, it’s probably gotten more complicated — not simple — for customers. Partly, that’s because … it’s very difficult to get a straight comparison from what one bank is going to offer a customer versus another bank because there are so many factors that go into that decision,” Ms Slade said.

She flagged that while most banks offer a basic product (which would be the easiest to compare), the complications arise once features (such as offsets) and offers (such as honeymoon rates or cashbacks) are provided to the customer.

“I definitely think they’ll be opportunity for many of us in the market to try and find a more standard way for customers to compare products,” she said.

Over the course of the hearing, the major bank heads were also asked about their thoughts on the 3 per cent serviceability buffer.

While NAB has recently introduced a lower serviceability test for some borrowers, Mr McEwan said NAB was “very supportive of having a buffer put in place through the regulatory and have been supportive of that the whole way through”.

“It’s really around the customer that we’re looking after and making sure that they have the capabilities — if interest rates do go up — they can actually continue to make repayments,” Ms Slade added.

“That [3 per cent] buffer is there, essentially, to be a shock absorber for the customers in different circumstances. So that could be interest rates going up, it could be changes in income or expenses, so the buffer makes sense.”

She added that it was “helpful” that APRA had issued some guidance for lenders, particularly when it came to dealing with customers looking to refinance from one lender to another and that the bank had communicated to “customers and to our lenders and brokers that we do business with” about when the lower buffers would apply.

“We’ve communicated to them that, in circumstances where a customer is looking for a like-for-like refinance, that customer is in good standing and may have a loan-to-value ratio less than 80 per cent; [then] if, at first pass that customer doesn’t pass serviceability at a 3 per cent buffer, we’ll refer that file on to one of our credit assessors to take another look and make a decision,” she said.

“We think that’s important to assess each customer on a case-by-case basis.”

[Related: Lenders urged to help with cost-of-living pressures]