Are rate tracker mortgages a better alternative?
It has often been said that Australia is a nation of gamblers. Our love of variable home loan rates is proof of that. For many of us an initial low rate is extremely attractive, and we’re willing to take on the risk that the rate could rise.
But complicating our love of a punt is that the odds can be stacked against the mortgage holder. Not only can rates rise, but banks are in the driver’s seat when setting the rates for home loans.
For Australians desperate to own their own home there is confusion over how the rates are calculated and a desire for greater transparency.
As it stands only 17% of Australian mortgages are fixed, but there is growing demand for an alternative to the in-demand variable rate offerings.
The debate took centerstage recently after the Australian Securities and Investments Commission (ASIC) chairman Greg Medcraft threw his support behind a suggestion from Liberal MP David Coleman that the four major Australian banks offer tracker mortgages.
Mr Medcraft said that offering residential mortgage loans that track the official cash rate, as opposed to a standard variable rate which the banks themselves set, would be a way of boosting competition in Australia’s banking sector.
“These rate tracker mortgages are very popular overseas because the consumer knows there is a fixed margin by the bank over the life of the loan,” Mr Medcraft told The Australian Financial Review.
“The problems in Australia at the moment is there is a double jeopardy with the standard variable rate loans.”
But are tracker mortgages the answer?
The jury is still out with influential figures in the banking and mortgage sector weighing in with their thoughts.
At the recent House of Representatives Standing Committee on Economics’ inquiry in to the big four banks, there was a mixed response.
Against the idea of tracker mortgages were Westpac CEO Brian Hartzer and NAB CEO Andrew Thorburn who said that there would need to be high premiums associated with these type of mortgages because of the amount of risk banks would take on when offering them.
The result of this may be that consumers wouldn’t want to take them on due to price, and would stick with a traditional fixed rate loan if they were looking for security, according to the two executives.
On the other side of the fence were ANZ CEO Shayne Elliott and CBA CEO Ian Narev who, despite the higher risks for banks, were open to the idea. But like Hartzer and Thorburn, they thought there would be little demand for the products.
The AFR had reported that mortgage brokers and non-bank lenders are also not convinced about the idea of introducing rate tracker loans.
Currently the ANZ Banking Group is the only bank investigating how to structure and price a rate tracker mortgage, and is also considering its likely demand, according to the AFR.
With the debate ongoing, consumers are still looking for a transparent home loan option. LoanDolphin, Australia’s leading loan bidding platform, satisfies this need and allows customers to refinance or obtain new home loans at rates not advertised by banks or lenders.
Mortgage brokers, lenders and banks bid to win customer’s business on LoanDolphin, giving prospective home owners access to the best interest rate for their situation. Australians using the free online platform have already begun to save tens of thousands of dollars on their mortgages.
The platform is crucial to helping those in the dark – with a recent survey conducted by LoanDolphin revealing that 65 per cent of borrowers were unaware of that their mortgage interest rates were.