Borrowers are being bombarded every which way right now by the apparent new-found generosity of corporate big-wigs who are in the business of selling money. The banks are at war, but it’s those with mortgages who stand to become the forgotten casualties in this epic battle between good and evil…errr…maybe that’s between evil and the lesser of two evils?
At the moment, you can barely turn the page of a newspaper or flick the TV on without being assailed by another offer from some lender or another. Ironic really, considering not long ago (in the wake of the GFC when terror regarding lending practices reined supreme), you virtually had to sell your soul to secure a loan from these gun shy institutions.
First into the fray was the NAB, making headlines with its witty little advertising gimmick when it “broke up” with the other Big 4 Banks on that most monumental day of romance and undying love – Valentine’s Day.
In an attempt to distance themselves from the money grubbing perception that, let’s face it, most Australians have of these all powerful rulers of the financial kingdom, they set about painting themselves as more caring and less corporate. The marketing ploy certainly made an impact, but what were they really trying to tell consumers?
The NAB’s primary agenda was to jump the gun on treasurer Wayne Swan and the federal government, announcing the abolition of exit fees prior to the July 1st legislation that will outlaw exit fees across the board anyway.
Escalating their offensive, the NAB then offered new customers looking to jump ship from the Commonwealth and Westpac up to $700 in exit fees they’d be liable to pay by joining the enemy ranks. Of course it’s no surprise that these two banks just happen to be outgunning the NAB in the home loan arena.
Westpac launched a counter-attack by dropping its application fee and offering a discount of up to 0.8 percentage points on some of its home loan products.
Other lenders threw their weight into the war by offering loyalty rate cuts if you pledged allegiance to their products for a few years.
Retaliating with vigour, the NAB-owned Ubank introduced a variable home loan at 7.05% with no application, exit or ongoing fees, and a 0.10% loyalty discount for the life of the loan once it’s been held for three years.
Sensing the enemy approaching, the Commonwealth jumped headlong into the fray with a “no-fee” variable interest rate home loan at a “highly competitive interest rate” (their words, not mine) of 7.24%.
Speaking like a true general leading the charge, group executive of the CBA’s retail banking services Ross McEwan announced, ”Unlike our competitors, we won’t apply fees such as late-payment fees, loan service fees, settlement fees or loan increase fees.”
Is this really a winning ploy though, given that some smaller lenders already boast variable rates closer to 7%?
While borrowers could be forgiven for thinking they are set to be the victors in this struggle for home loan supremacy, I would suggest that you still need to tread very carefully. Because let’s face it, where the banks are concerned they always play hard and for maximum profit.
In other words, for every discount lobbed in your direction, you must always ask yourself where the next ambush on your hip pocket is likely to come from. Sure they might be offering to waive fees, lower variable rates in return for loyalty and pay you to leave your existing lender and promising enticing incentives like generous interest discounts on package products, but should we believe they are fighting for borrowers or simply more business?
The fact is, when it comes to lenders they have one goal in mind and that is profit. They never give anything away without taking something in return, so in order to make sure you are in fact getting a good deal out of this current banking skirmish, you need to carefully examine the bottom line – what is the true cost of the loan you are committing to?
If it’s a rate discount on a variable loan, is it really a ripper deal or does it simply bring that particular bank into line with other lenders already offering a lower standard variable product? Could you get a better deal if you shopped around or even asked your current lender what they can do for you?
And when it comes to the seemingly warm-hearted offer to waive a one-off application or exit fee, or to pay your exit fees to switch banks, remember that this cost might pale in comparison to any ongoing monthly fees, late payment fees or higher interest rates that you might have to accept in return.
Then there are the fantastic discount rates on package deals. But what about the bells and whistles that go with such loan products? Do you need them all and will you potentially be racking up a ridiculous amount of debt on the credit card your lender kindly throws in at an interest rate of around 20% or more?
While the current battle between the banks to win your business might be an encouraging sign that more intense competition is once again returning to the finance sector (call me skeptical but I still think we’re a long way from where we need to be with regard to true competition!), at the end of the day it’s critical that borrowers do their sums and shop around to get the best possible deal for their circumstances.
The banks might like you to think they’ve become all warm and fuzzy, but when all is said and done, that teeny tiny heart of theirs only has one soft spot…and that’s reserved for their profit margins.
About the Author
Since 2008, David Thomas has built a business aimed at servicing the needs of property investors, owner occupiers and small business owners. David is recognised as one of the top 10 independent mortgage brokerages in the country, David and his team have settled almost billions of dollars worth of residential and investment loans over the last decade.
Known for his straightforward, relatable style, David believes by educating people about property funding; they fare better in the market. By sharing his expertise openly, some of the people he educates will likely become his clients. It's a win-win approach.
David Thomas is a credit representative (Representative Number 506153) of BLSSA Pty Ltd, ACN 117 651 760 (Australian Credit Licence 391237).