The head of the Finance Brokers Association of Australia has called on the big banks to drop home loan rates.
FBAA executive director Peter White recently welcomed moves from non-banks to drop interest rates, but he stated that he’s “disappointed” that major banks haven’t followed suit.
“It is good to see the non-banks, second-tier and small lenders supporting home borrowers,” Mr White said this week.
“But at the same time, it is disappointing the big banks like ANZ seem disinterested in trying to work with borrowers by doing the opposite and putting their rates up.”
The FBAA executive warned banks not to “stab borrowers in the back” with “unjustified” rate rises and out-of-cycle interest rate changes.
“We hope in 2018 the big banks remember where their profits come from, and that is borrowers,” the executive director added.
However, Digital Finance Analytics principal Martin North told The Adviser that he expects the banks to increase, not decrease, rates, adding that a rate reduction wouldn’t be “feasible”.
“It’s not really feasible to cut rates in this situation when in fact I think we’re going to see rates rising,” Mr North said.
“Many borrowers can get extremely low rates at the moment, so I’m not sure there’s a need to slash rates further, and I’m not sure the banks will be able to because they’ve got margin compression going on behind the scenes.”
The economist believes that major banks are opting to “selectively” discount rates for specific borrowers as a way to “protect their margins”.
“[When] the interest-only books were repriced, that gave large banks, in particular, a bit of a war chest to be able to discount deeply, to offer new loans to targeted new customers. And that’s what’s playing out at the moment,” Mr North added.
“The fact is that the majors have tended to protect their margins and selectively discount loans to new customers.”
Mr North also advised borrowers to “shop around” to avoid the high rates offered by the major lenders.
The principal said: “A lot of the non-banks and also some of the customer-owned players have better rates than the majors, so if you are looking for a loan, shop around and go to some of those guys to get a better rate.”