Choice's Big Switch home loan campaign a 'gimmick', say bankers

The Australian Bankers’ Association has labelled the Choice campaign to encourage borrowers to switch their mortgage providers a “gimmick”

“The Choice gimmick is fine, but bank customers would be better off talking directly with their bank if they’re not satisfied with their current mortgage,” says Steven Münchenberg, chief executive of the ABA.

“People already have a lot of negotiating power in the competitive home lending marketplace, especially now, when demand for credit is low,” he says.

Münchenberg claims that borrowers are “routinely offered discounts, which can shave up to 1% off the interest rate saving thousands of dollars over the full term of the loan”.

The Choice campaign was set up in tandem with loan advisor One Big Switch, set up by Lachlan Harris, Kevin Rudd’s former spin doctor.

The scheme was launched on July 31, 2011 following the government ban on mortgage exit fees and has already attracted in excess of 10,000 borrowers by mid-Tuesday who have pledged to explore switching to a better mortgage deal.

The scheme had an initial target of 1,000 borrowers and will close on August 14.

Mortgage holders register at www.bigbankswitch.com, with lenders then competing to make offers to the registered group. They are under no obligation to switch.

It has the partial support of the Mortgage and Finance Association of Australia, which is predominantly made up of mortgage brokers and smaller lenders.

MFAA chief executive Phil Naylor has welcomed it as an attempt to “free up competition in the home loan sector” but has questioned Choice’s commercial involvement in an industry in which it has “previously performed impartial advocacy”.

“One Big Switch is a joint venture between Choice and a commercial operation that matches borrowers with the best bank mortgage rate,” Naylor says.

“One Big Switch will earn commissions on successful mortgages and Choice has announced it will receive referral fees for its part in the transactions both practices of which Choice has, in the past, been critical.

“The MFAA is surprised that Choice is now becoming commercially entwined in the industry,” he says.

Choice says any fees received from One Big Switch will be used to recover the costs of running the campaign.

Criticism of the scheme comes on the back of bank regulator APRA writing to bank chairmen calling for appropriate pricing of mortgages including adequate loan to value ratios and other risk criteria.

APRA is concerned that lower mortgage growth is encouraging an aggressive approach by banks to win mortgage business including easing of lending standards to pre-GFC levels.

Naylor says that consumers should be aware that One Big Switch is not a new service; it is the service that 12,000 MFAA approved broker members perform for clients every day.