No one pays the 6.4% standard variable rate: Commonwealth Bank boss Ian Narev

No one pays the 6.4% standard variable rate: Commonwealth Bank boss Ian Narev
No one pays the 6.4% standard variable rate: Commonwealth Bank boss Ian Narev

Any Commonwealth Bank customer currently paying the Commonwealth Bank’s (or any major bank for that matter) standard variable rate of 6.4% is either an undesirable mortgage customer or a mug.

Such a conclusion can be drawn from comments made by Commonwealth Bank CEO Ian Narev to journalist questions at the bank's recent interim results briefing.

Asked by Channel Nine finance journalist Ross Greenwood why the bank published a standard variable rate when any customer “worth their salt” can get a 100 basis point discount, Narev responded that the standard variable rate was simply a “transparent benchmark” against which every individual home lending rate is set.

“So everybody's rate is relative to the standard variable rate. And I do not think there is any customers, I hope there is no customer who would say we have not been completely transparent to them about their rate.

“We describe it by reference to the benchmark rate, and that is the rate we talk about in the market. So it is very important for us indeed in terms of the legal framework in which we operate, it is very important that customers understand exactly what they are paying and it is something we are very focused on,” said Narev.

January mortgage approval figures compiled by Mortgage Choice, which writes one in 10 home loans in Australia, show that 20% of borrowers took out a standard variable mortgage over the month – one in five.

Logic would dictate that given the dominance of the Commonwealth Bank in mortgage lending (it has 25% of the market), there would be a significant proportion of borrowers paying the bank's standard variable rate as would the other major banks.

ANZ has a standard variable rate of 6.40%, NAB is at 6.38% and Westpac the highest at 6.51%.

Fairfax economic commentator Michael Pascoe told David Koch on Sunrise last week that variable mortgage holders should not be paying an annual interest rate of more than 5.5%.

During the media conference, Narev added that over the past 18 months the Commonwealth Bank had passed on more reductions to the standard variable rate than any other major bank.

Explaining the need for a standard variable rate, Narev said it was the structure under which the banking system operates and that all banks price to it.

“But we are still very keen to get good customers in a way that creates a fair price for them and value to our shareholders and that is something we are very focused on,” he said.

Commonwealth Bank chief financial officer David Craig said the bank was “sort of locked into having a standard variable rate because it is the legal baseline upon which all existing mortgages are priced”.

While Narev would not be drawn on whether the Commonwealth Bank would cut variable rates out of cycle of the RBA, he did hint that it was a possibility.

“I am not allowed to say anything in terms of future prospects on pricing. What I could say is that it is a competitive market and if we reach a different environment in terms of both the volatility and the cost of funding that is conceivable, [then] yes."

For borrowers looking for a little more transparency outside of the major banks, these are the lowest advertised variable and fixed mortgage rates based on listings on mortgage comparison websites ratecity.com.auMozo.com.au,  infochoice.com.au and homeloanfinder.com.au as of February 18:

Where the headline rate is the same, the lender with the lowest comparison rate gets preference.

Lowest variable rate offerings:

Provider

Loan name

Rate

Comparison rate*

Easy Street

Honeymoon Home Loan Special

4.99%

5.77%

Loans.com.au

Blackboard Special

5.09%

5.12%

UBank

UHomeLoan for refinancing variable loan with a special upfront discount of 0.25%p.a.

5.12%

5.12%


Lowest one-year fixed-rate offerings

Provider

Loan name

Rate

Comparison rate*

UBank

UHomeLoan for refinance fixed rate one year

4.83%

5.34%

Loans.com.au

Dream Loan Express - Fixed P&I 1 year

4.89%

5.28%

Newcastle Permanent

Fixed rate home loan

4.94%

5.97%

 

Lowest three-year fixed-rate offerings

Provider

Loan name

Rate

Comparison rate*

homeloanHQ

Rate Lock Home Loan

4.99%

5.53%

eMoney

Pro Pack 75 – 3 Year Fixed Rate Home Loan

5.00%

5.67%

My mortgage freedom.com.au

Fixed Rate (LVR<75%)

5.09%

5.62%

*A comparison rate includes both the interest rate and the fees and charges relating to a loan, combined into a single percentage figure.

For information on refinancing, watch our free webinar The Do's and Don’ts of Refinancing Your Existing Home Loan ... and How to Avoid Unnecessary Hurdles.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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