Post by Kevin Frost – Head of Centrepoint Lending Solutions
How many of your customers do you believe would know the interest rate they are paying on their home loan? I’ll let you know what we believe the answer is down below.
The RBA has held the official cash rate at 1.5% for the 25th month in a row and it’s tipped to stay there until 2020. In fact, the last time the RBA put the rates up was 2010. Yet, we’ve just seen a spate of “out of cycle” rate rises from Australia’s top lenders.
Westpac went first announcing an “out of cycle” rate increase of .14%. This of course also includes other brands such as, St George, Bank of Melbourne, Bank SA and RAM’s. Together they have a loan book of around $400B in residential mortgages.
Let’s do some maths. $400B, less say 20%, which are fixed rate loans, leaves $320B. An out of cycle interest rate hike of .14% adds $448 million in revenue to the Westpac bottom line. CBA by the way are bigger! A recent article estimated the average Westpac customer, will pay an additional $25,000 in interest on their mortgage over the life of their loan, and Westpac has a lot of customers.
ANZ raised their rates .16%, CBA .15%, Suncorp .17%, Adelaide Bank .12%, NAB has said they will vigilantly watch the cost of funds and make changes accordingly. The Royal Commission hasn’t even finished their review yet, and let’s face it the banks didn’t fare so well! Why are they increasing rates?
“Out of cycle” rate rises will likely continue due to a rise in the banks cost of funds. While the RBA hasn’t increased the official cash rate the Bank Bill Swap Rate has increased, putting upward pressure on banks to increase their rates out of cycle.
Let’s look again at Westpac (well they were the first to increase rates!). Last year they had an $8B profit result. My thoughts are we shouldn’t be feeling too sorry for them and their cost of funds, particularly not at our customers’ expense. Again, CBA is bigger, and the rest are pocketing enormous additional revenues as well.
One thing we know in the lending industry is that Banks are super competitive to get access to new customers, but they like to make up for it with existing clients with steady increases over time that don’t necessarily match the “new customer” rates and discounts.
So back to the original question: How many of your customers would know the interest rate they are paying on their home loan? You may be surprised to know it’s estimated at less than 20%. Wake up customers! You are likely paying too much.
If you are servicing your customers correctly you will be looking at refinancing them to a new lender, or at the very least have them make a phone call to their existing bank. Have them ask, what rate am I paying and what rate will you now be giving me to keep my business?
It’s truer now than ever - if your customer’s interest rate doesn’t have a three at the front of it, they are likely paying too much.
It’s a game of cat and mouse. Banks love interest rate creep on existing customers while competing for new customers. Don’t let them get away with it. Make sure your client is getting the best deal possible.
Would you like to find out how the integration of lending into your financial advice firm could boost revenue? Make sure you view the video recording of our webinar.