A Sydney broker and financial literacy advocate has called on the federal government and ACCC to take action against the banks over out-of-cycle rate hikes.
Finance expert and founder of simplyaskit, Paul Ryan, said the repricing of mortgages “is getting out of control” and hurting Australian borrowers, particularly when they are simultaneously being offered incentives to switch.
“I find it difficult to accept that banks and other lenders can offer incentives and discounts to attract new business and then all of sudden reprice an existing customer's loan by 20 to 30 basis points,” Mr Ryan said.
“The banks should be saying, we want you to come on board as a new customer and as a show of good faith we will guarantee the interest rate on your loan will not move outside any RBA move for the first three years of the loan,” he said.
Last month, Westpac announced an increase of 0.34 per cent to owner-occupied and investment interest-only loans while cutting owner-occupied principal and interest loans by 8 basis points.
NAB and CBA followed up with similar announcements.
Mr Ryan, an executive director at Intouch Finance and a former Wizard Home Loans manager, estimates that Westpac’s decision to increase interest rates on their variable IO loans by 0.34 per cent and reduce P&I variable rate owner-occupied loans by 0.08 per cent will have increased their profits by over $150 million per annum.
“Add in NAB and CBA and the impacts on profits is massive,” he said. “In November 2015, the cash rate was 2 per cent and has since been cut to 1.5 per cent by the RBA, yet the banks have repriced a number of loans in December 15 and 16, March 17 and now again.”
Mr Ryan said it is “too easy” to blame a rise in the cost of funds or the extra demands from APRA as a reason to charge Australian borrowers more.
“The notion of increasing the rates for existing customers while still offering discounts and incentives to new customers is wrong,” he said.
“It is also too simplistic for the government to say, ‘it’s ok, if you aren’t happy with your existing lenders we’ve made it easier to change lenders as there is strong competition from the non-major banks and non-bank lenders’.
“The non-major and non-bank lenders are businesses with shareholders and when you have majors increasing rates of course the smaller players see it is an opportunity to put a little extra back into their own business. They might not increase rates as much as the big banks but history tells us they still increase their rates, which again hits the pockets of Australian borrowers.
“If the APRA regulations are designed to take the heat out of the property market then banks and lenders can simply tighten their lending policy and criteria for new loans to meet the new APRA requirements. They didn’t need to increase the interest rates on existing home and investment loans to do that”.
[Related: Banks, ACCC slammed over rate hikes]
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James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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