Rate tracker home loans hit Australia, despite big bank fears
An Australian lender has launched the country's first rate tracker home loan.
Australian Securities and Investments Commission (ASIC) chair Greg Medcraft recently took Australian banks to task, calling for the introduction of tracker mortgages. The products, which are popular in other overseas markets, guarantee a rate at a fixed margin above the central bank cash rate. Medcraft, in a parliamentary appearance before the Standing Committee on Economics, said the products could end the lack of transparency around bank pricing.
“We’re in a market that is, frankly, an oligopoly ... I think the reason we don’t have them today is because there is a lack of competition,” Medcraft said.
In the wake of the comments, Queensland’s Auswide Bank has launched a rate tracker mortgage it says is the first of its kind in the country. The home loan is set to a fixed margin above the RBA cash rate, with a floor should the RBA cash rate fall to 0%. The bank said any RBA rate moves would result in a change to the product’s rate within two working days of the RBA decision.
“[The product] meets the needs of a group of borrowers who prefer a variable rate but value certainty and transparency about how much they will pay for their home loan and when interest rate changes will be passed on,” Auswide managing director Martin Barrett said.
Major bank heads have been resistant to the idea of the products. Westpac CEO Brian Hartzer told the parliamentary Standing Committee on Economics that the products were “fraught with risk”.
"When your cost of funds spike dramatically and yet you're unable to reprice your loan book, that's a serious for problem for the bank,” he said.
NAB chief executive Andrew Thorburn, meanwhile, argued that the rates attached to the products would be “significantly higher than the standard variable rate”, and that there would not be demand for the products in the Australian marketplace.