Home borrowers warned to avoid ‘bait and switch’ tactics: Aussie Home Loans CEO

Borrowers who choose heavily discounted home loans are at risk of being caught up in a “bait and switch” manoeuvre, according to Aussie Home Loans chief executive Stephen Porges.

Porges hit out at lenders offering home loans at “underwater” interest rates as part of a panel discussion on mortgage competition at the AB+F Mortgage Innovation Forum 2012 Sydney this week.

Porges said Aussie welcomed competition but expressed concerns about this form of “unhealthy competition”, which would force lenders to push up rates in the future to protect margins.

“Healthy competition is based around capabilities, and long-term relationship and actually valuing what the customer is trying to achieve in a holistic focus. It's not just trying to get a cheap rate,” he said.

He said some lender practices were very close to bait–and-switch tactics, which came to prominence in light of the US sub-prime mortgage crisis, when borrowers were enticed by advertisements of cheap rates and low fees but then pressured to sign up for more expensive loans by being told they did not qualify for the special offer.

Porges said he expected APRA would start to show an interest at some point in some of these discounted mortgage offerings.

Also speaking on the same panel discussion, Yellow Brick Road CEO Matt Lawler said much of the industry had moved beyond just offering a cheap rate and was now focused on how to add value after the product is sold.

“A very cheap rate on a certain day may not be the cheapest rate later on, so we have to do something to add value,” he said.

The major banks are among those offering (and advertising in their branch windows) discounts of up to one percentage point off the standard variable rate.

At the same time the same banks are warning borrowers to expect more independent rate announcements, with Westpac boss Gail Kelly warning last week of frequent incremental rate rises in the future.

In an earlier address at the conference, Steven Münchenberg, chief executive of the Australian Bankers’ Association (ABA), admitted that the most of the public viewed banks as powerful and greedy.

“We will always struggle to persuade people that higher funding costs justify rate changes, or that our profits are reasonable and necessary, when their starting point is that we are all-powerful and greedy.

“People see us this way because there is a big and possibly growing gap, between what they expect of the industry and what they see us deliver,” he said.

 

 

 

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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