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Banks should be ‘prudent’ on tracker mortgages

Reporter 3 minute read

A leading economist has said that he believes tracker mortgages may be “great” for consumers, but said that banks should be “prudent” when it comes to implementing them, because they do not want to be “caught short”.

Speaking to The Adviser, Stephen Koukoulas, former chief economist of Citibank and senior economic adviser to the Australian Prime Minister, said that the debate over rate tracker mortgages (which are tied to the official cash rate) is not a simple one, because although they could be good for boosting transparency on a consumer level, the banks’ funding model of banks makes it more complex and risky to implement.

The Market Economics managing director explained: “It's up to the bank to do it, but from a consumer's side they'd be great because you've got that link to the cash rate and you can see very, very clearly that when the RBA adjusts interest rates up or down, you know exactly what's going to be happening to your borrowing costs. It gives the borrower certainty, rather than the banks only passing on 12 of the 25 point cut or hiking them out of cycle etc.

“But, I think the banks should be prudent in their lending. This might sound an obvious thing to say, I think you've got to be very careful, particularly when we've had such fantastic increase in house prices… it's been a stunning rise in house prices. 

“They need to be prudent and careful and cautious with products like tracker mortgages, because you don't want the banks to be caught short if there is a house price correction.” 

Mr Koukoulas concluded: “So, from a consumer's perspective I can see why they might be desirable, but from the banks’, clearly it's up to them to work out what they want to do and whether it's viable, prudent and safe for them to do so. 

“However, I don't think it's as big an issue as some people are making out because it is still relatively easy for a credit worthy borrower to borrow money to buy a property.” 

The economist concluded: “This whole argument over mortgages, not just tracker, but also floating rate and fixed rate, is why mortgage brokers are so vitally important; because as a new borrower or someone early in the process of buying a property, they can tell you which is a good bargain and which isn't. 

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“They know those details associated with the mortgages intimately, so they're very useful to talk to on those sorts of things.” 

Better Business Summit 2017

Stephen Koukoulas will lead a fascinating session on the future of property markets and the Australian economy at the Better Business Summit 2017. He will identify how the economy and market will influence customers’ ability to secure finance and manage their mortgages and reveal what they need to know to make better buying and investing decisions.

The economist will also identify population and growth hotspots in Australia that will underpin property price growth and yields, and expose the no-go zones investors should be avoiding.

Now in its fourth consecutive year, the award-winning Better Business Summit runs across five cities over February and March, and features a jam-packed agenda crammed with practical tips, tools and strategies to help all brokers grow their business.

PROMOTED CONTENT


The day will culminate in the Better Business Awards, where each state’s best brokers, aggregator BDMs, lender BDMs, loan administrators and those running community engagement programs will be honoured. A list of finalists for the awards is out now.

With limited tickets remaining in each state, book your seat now to make sure you don’t miss out.

[Related: Better Business Summit 2017 agenda revealed]

 

Banks should be ‘prudent’ on tracker mortgages
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