Westpac’s secret home loan rate change
Westpac customers face having thousands of dollars added to their home-loan costs under a secret move to automatically reduce repayments.
Currently repayments are left untouched by all four big four banks when they lower interest rates in response to action by the Reserve Bank of Australia.
But The Daily Telegraph can reveal that from next month, Westpac will go it alone by automatically changing rates on mortgagors.
If, as is expected, the RBA cuts again, customers could see their repayments lowered by hundreds of dollars a month because Westpac will adjust repayments to reflect all five rate reductions in the space of past year.
That in turn will slow the pace at which borrowers pay off their loan, which increases the total interest bill.
While Westpac already has a system of resetting rates annually, the new monthly move could add $3000 to the long-term cost of a $500,000 loan, analysis by The Telegraph suggests.
The only bank known to already do what Westpac is implementing is its subsidiary, NSW-focused St George.
Westpac is yet to write to customers to inform them of its policy change but it intends to do so.
It will allow any customer who wants to keep their repayments untouched to make that choice but it will require contacting the bank.
That is the opposite of the position taken by ANZ, NAB and the Commonwealth Bank.
Westpac told The Telegraph it was making the change as part of a move from a manual to automated system. It also said it was responding to customer feedback.
Other banks have argued what Westpac is doing is not in customers' best interests.
In November last year, ANZ boss Shayne Elliott told a House of Representatives' standing committee on economics that automatically reducing repayments was a bad idea.
Mr Elliott said he believed that having a default mechanism that holds a borrower's repayments at the same level regardless of interest rate movements protected customers.
"We have taken a view that the default (to leave repayments unchanged) is in their best interest in the long term, to repay their debt," Mr Elliott said.
"And that is a considered view. I find it hard to imagine that I could ever push an argument that it is in my customer's interest to have it for longer."
NAB also told the committee it was against automatic changes.
ANZ has said only seven per cent of customers choose to reduce repayments.