Banks deliberately burying the true mortgage rate: Mark Bouris

Mark Bouris has called for greater transparency in how banks advertise their mortgage rates while claiming the lowest “branch” variable rate of 4.98% through his Yellow Brick Road franchise.

Bouris says banks confuse borrowers by only advertising the discount rather than the actual rate as well as through honeymoon and introductory rate offerings, which revert back to higher variable rates when the introductory term ends.

Yellow Brick Road has begun phasing out its discount variable rate advertising in favour of “true rate” advertising in an effort to present consumers with the real rate that they will pay on their home loan. 

In a statement, the company said that discounting was "originally introduced as a privilege for private banking clients...now this discounting strategy has been adopted by the industry to the point that the discounts have become the stand alone feature in advertising, leaving consumers to dig for the actual interest rate that they will pay". 

“This is a smart strategy for lenders that want to bury their true rate, but it leaves consumers completely in the dark,” says Bouris.

“We’ve received that feedback from our customers and we are taking into account how discount advertising is affecting their borrowing decisions. That’s why we have changed our positioning and are taking the first step towards true rate advertising.”

The banks also have a policy of offering the biggest discounts for borrowers that take out loans of $500,000 or more as well as favouring new customers with bigger discounts.

Yellow Brick Road’s “rate smasher” home loan – a basic home loan - is available for loan amounts from $100,000 to $750,000 but does come with a hefty 30% minimum deposit requirement putting it out of reach of most first-home buyers and aimed squarely at investors or upgraders with equity in their homes.

For loans with more features, Yellow Brick Road’s Empower home loan range charges an interest rate of 5.19% for borrowers with a loan to value ratio of 80% or lower and 5.24% for borrowers that don’t have a 20% deposit.

The cheapest advertised discounted rate of the major banks is 5.28% offered by NAB – an 85 basis point discount off its standard variable rate - but requiring a minimum $500,000 borrowing and currently available for a limited time.

Bouris claims banks deliberately confuse customers and is calling for them to keep people “educated and informed” by being more transparent about the actual rate they pay.

Yellow Brick Road recorded a 9% rise in home loan settlements for the June quarter from its empower home loan – its best quarter in its history with a total mortgage book worth $1.79 billion.

The wealth management franchise recorded a $5.1 million net operating cash flow loss for the 12 months to June 30.