The Australian public “deserves to know what’s going on”, the Finance Brokers Association of Australia has said while welcoming news of increased big bank scrutiny.
Peter White, executive director of the FBAA, has applauded the Australian Competition and Consumer Commission’s (ACCC) move to make the banks accountable for mortgage pricing decisions.
He was responding to claims made in the Australian Financial Review that the ACCC had issued compulsory information notices to the major banks in order to collect data on the process behind the setting of interest rates on residential mortgage products.
“We applaud the ACCC for eventually doing its job in this regard, as we realised months ago there was a real possibility of the big banks passing the cost of the new bank levy on to its customers,” Mr White said.
The FBAA added that while it had “called for the review back in June”, Mr White was pleased that the ACCC had “taken notice and decided to act”.
He said: “Some of these rate increases are extraordinary and the Australian public deserves to know what’s going on.
“The emphasis now is on the banks to justify their decisions to increase rates and maintain consumer trust in the bank sector.”
In recent months, rate hikes have seen some interest-only and investor rates increase by up to 66 basis points.
The hikes follow a mandate handed down by the Australian Prudential Regulation Authority (APRA) to limit new interest-only lending to 30 per cent and keep investor lending below 10 per cent of lenders’ portfolios. A few months later, the federal government announced a proposed levy of 0.015 per cent on the four major banks plus Macquarie. The levy was calculated to bring in $6.2 billion over the budget term.
Since then, the four major banks and many other lenders have increased rates on interest-only loans and in some cases made cuts to principal and interest rates.
When increasing rates in June, CBA said that the hike did not reflect the bank levy but was in line with the APRA mandate. ANZ also attributed a June hike to “regulatory obligations” while rejecting the notion that it was in response to the major bank levy.
Heritage Bank increased its interest-only rates last week as well but cited increased demand as the reason.
Following rate increases across all major banks and many non-major lenders, a sharp spike in demand for interest-only loans meant the only “real option” open to the bank was to increase rates.
“The result is that we now need to take action to ensure that we remain within the cap that APRA has imposed for new interest-only lending,” said Michael Trencher, head of broker distribution at Heritage Bank.
“Lifting interest rates is the real option open to us to slow growth in interest-only loans.”
According to the managing director of Bell Partners, Mark Stevenson, “competent” brokers should only be recommending principal and interest repayment structures as taking out an interest-only loan was “literally flushing tens of thousands of dollars down the drain”.
[Related: ‘Everybody’ needs a mentor: FBAA]
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