Willis Tells Banks - Cut Your Rates
The Age
Saturday February 10, 1996
Canberra.
The federal Treasurer, Mr Willis, yesterday called on home buyers to ``pick up the phone" and put pressure on their banks to cut home loan rates.
Mr Willis confidently predicted a general fall in bank rates during 1996, saying current rates at 10.5 per cent had been ``defying gravity".
He was speaking after the largest non-bank home lender, Aussie Home Loans, cut its variable rate to below 9 per cent.
Mr Willis said banks could lose many traditional customers in the face of intense competition from new mortgage originators, which accounted for 10 per cent of new home loans.
``We can fully expect therefore that bank mortgage rates will decline this year - not only for new borrowers but for existing borrowers," Mr Willis said.
``I urge borrowers to hasten this process by picking up the phone and asking their bank for a better mortgage deal.
" Mr Willis said banks had been focusing ``honeymoon" deals and other competitive efforts on new borrowers but ignoring existing customers.
``At current interest rate differentials, the attraction to refinance with a mortgage originator is very strong - a 1.5 per cent lower interest rate on a $100,000 mortgage over 25 years represents a saving of $70 a month, or $21,000 over the life of a loan," he said.
``Only people with money to burn could afford to ignore such savings."
Mr Willis said the ``fierce competition" in the home loan market was the result of Labor's reforms of the financial system.
His comments signal a renewed push to pressure the banks into delivering interest rate ``sweeteners" to home buyers in the run-up to the election.
Late last year he made similar calls for the banks to cut variable rates - which cover about 70 per cent of all home loans - questioning why they were 3 per cent above official cash rates set by the Reserve Bank. Mr Willis also pressured the banks last year into reviewing fees after a critical report by the Prices Surveillance Authority.
Yesterday's move reflects the reality that a cut in official interest rates is off the agenda, with little sign in Thursday's earnings figures that wage pressures were easing.
Housing, employer and welfare groups have also in the past been critical of high bank margins. A leading market economist - Shroders chief economist, Mr Warren Tease - said yesterday there still appeared to be ``a lot of fat" in margins.
There was little reaction yesterday from the major banks, which have consistently said their variable rates are ``continually under review".
But the National Australia Bank announced that rates on some of its fixed-interest home loans would come down by between 0.15 and 0.45 per cent.
Earlier, Aussie Home Loans announced it had cut its standard variable rate by 0.35 per cent, from 9.25 per cent to 8.9 per cent, placing it more than 1.5 per cent below the variable rates of the major banks.
AHL's managing director, Mr John Symond, said this meant people could save $145 a month on a 25-year loan compared with a similar-sized variable-rate bank loan.
He accused the big banks of reaping ``huge profits" by keeping their variable rates well above official rates. The no-frills products offered by the banks also lacked credibility because they did not offer long-term savings compared with AHL loans, and were less flexible.
© 1996 The Age