Auswide defies big four banks with rate tracker home loan
AUSWIDE Bank has launched a product which it hopes will be a solution to one of the major gripes customers have with banks - how home loan costs are set.
Last week the Bundaberg-based bank launched its rate tracker home loan, which it says will offer customers transparency, increase healthy competition and improve the bleak reputation of the industry.
By doing so it challenged the big four banks who all oppose the introduction of tracker mortgages.
"It's a simple product and basically just follows the movements of the Reserve Bank,” says Auswide Bank managing director Martin Barrett.
"When the Reserve Bank reduces interest rates or increases rates, the tracker loan will move correspondingly.”
Auswide Bank will offer the loan at a variable interest rate of 3.99% - the comparison rate being 4.01%.
If the RBA cash rate changes, Mr Barrett said the bank would change its rate within two days from the RBA decision.
Mr Barrett said if the Reserve Bank cut the cash rate to zero, Auswide's rate would not fall below 2.49%.
The Australian Securities and Investments Commission, the banking regulator, supports an introduction of tracker mortgages.
During the parliamentary bank inquiry earlier this month, ASIC chairman Greg Medcraft criticised the big four banks for operating as an "oligopoly” and said mortgage trackers would make it easier for customers to compare loans, and rid consumers of the tiresome games played out on mortgage pricing following an RBA rate change.
So why do the big four banks resist?
The banks argue tracker mortgages, linked to the RBA cash rate as a benchmark, would be risky during tough financial times, and the cash rate was not the same as their cost of funds.
Mr Barrett said the big banks' argument wasn't without merit.
"The big banks are right, that there is not a direct correlation to the cash rate
"But we think there is very valid way of managing the risk.”
Mr Barrett says he hopes to release the mortgage tracker through brokers within the next few weeks.
"That allows clients that use brokers, which in today's market is about 50%, to get the product,” he said