mortgageinsider,

What needs to be looked is whether Banks are providing unused limits [amount customers overdraw]to corporates. Wherein, funding provision is made but not necessary drawn-down: Hundreds of millions of dollars. A good example are limits provided to the big international wheat/wool brokers. Perhaps, the provision should be re-allocated. Moreover, Banks because they have been able to depreciate buildingd/property over decades, often show undervalued properties' worth.

It is easy for your local branch turndown a request for $200,000 to a home borrower. But what about BHP asking for $200 million at what insiders call a "shaded" rate. MNCs don't pay the rates we do on loans or foreign exchange.

Hello Oliver.

With respect, I must disagree. Whilst there are a range of initiatives that could be looked at, the prioritisation should reflect need, feasibility, impact, time frame and cost.

There is a real plan to reduce the cost of mortgages available to the government today and this has been the case since 2007. It directly affects every person who has a mortgage and indirectly affects many more, including tenants of landlords that have mortgage finance on the property. It offers precision rate relief to the mortgage only and rolls back at least 50% of this years RBA increases. It can be implemented immediately at a cost to government of around $700,000. So why the delay?

Some aspects of the plan already operate on a modest scale, however can be grown and further competition should arise. The key challenge to growing the plan is that the main dividend of the plan flows through to the borrower. There is simply not enough cash return in it for private investors, and social benefit does not inspire them.

Whilst you continue to introduce tangential concepts to demonstrate an impressive intellect, education and experience, you detract from a simple discussion on inaction on the part of government, on a what is a very real problem for many Australian families.

With mortgage costs high on the pre-election campaign priority list, it is completely unreasonable that the people have borne further rate hikes coupled with a complete absence of solutions from the government, not withstanding the one that is sitting right under their noses.

mortgageinsider.

In the old climate, when banks never raised their rates independently of the RBA, your general punter could get some idea about the direction of rates by looking at inflation figures, RBA governor comments etc. You also knew when the board met and likely timetable for interest rate movements.

In this new environment, why would anyone get a variable loan? You have no idea how exposed these private companies are to the sub-prime problem, no idea how much they value customer base compared with shareholders, no idea what level the banks will decide on a whim to increase their interest rates (possible using sub-prime as an excuse), and on what timeframe.

The ledger really needs to be evened up. The most important thing that needs to be done is to outlaw exit fees, so the lender actually has a realistic risk that the customer will switch to a better rate if they increase their interest rate.

Thanks Usual Suspect,

The majority of borrowers still opt for variable rate loans. Whilst uncertainty exists around rates increasing, it also exists around rates falling. RBA comments are as relevant today as they always have been. A key difference however, is lenders have broken ranks with RBA rate changes and nobody has done anything to pin them back. Although ANZ was the first to break ranks, the others shortly followed.

Even putting aside exit fees, the lack of real competition has allowed this situation to manifest. Remove exit penalties and the borrower is still hobbled by the absence of real competition. In the unlikely event that these fees are outlawed, the cost will simply be ‘reorganised’. For example, the exit fee you raise is one of many that gained a spurt of popularity following legislation of Compulsory Comparison Rates (or CCR). The CCR attempts to facilitate simple comparison of credit products. The theory was that, by legislating lenders to include actual interest costs and fees, consumers would then have a fair benchmark.

Whilst there are numerous issues with the legislation, perhaps the most glaring is that lenders only have to include ‘ascertainable fees’. This allows lenders to conceal a range of fees as ‘unascertainable’, thereby leaving them out of the CCR. Exit penalties are but one of these fees. The list is long and dubious. i.e. one prominent non-bank lender (which is owned by a bank!) only ‘sometimes’ does valuations ergo valuation fees are not included in the CCR. The moral of the story is you cannot legislate these fees into extinction. Lenders will outmanoeuvre the legislators, as they have in the past.

The mortgage relief plan in front of the government since 2007 dilutes the cost in time and money to vote with your feet. The plan is the culmination of six years of specialist study of the mortgage market. In the very least, government should use the plan as a talking point rather than doing nothing.

Let’s get them moving and sign the petition so we can get enough numbers to show the issue is important.

Competition would be great, but I don't hold much hope. I hear Westpac is about to buy StGeorge. I think eventually we will only have one bank in Aus.

Does anyone know how we can increase competition in Banks, Telecos and Supermarkets? What is the effect of letting more foreign players into the market?

Does anybody know what's stopping the big four banks from all just increasing their interest rates by 2% and blaming sub-prime? I can imagine when the RBA does lower interest rates, the banks wont pass it on.

Regardless of whether the Westpac takeover proceeds, a single bank Australia is a very long bow to draw.

Australia has 10 foreign banks following deregulation of the banking industry over a decade ago. The obvious effect has been to increase competition. However that does not automatically translate to pricing competition. As per my previous comment, lenders actively compete on hiding fees and shifting terminology as well.

In the last 6-7 years, pro-borrower innovation has been scant. Although lenders will argue otherwise, most innovation simply facilitates higher debt. This help borrowers spend more, but does little to reduce cost.

Pro-borrower innovation is limited to the abolition of restrictive conditions for professional packages. This means rate discounts to more borrowers in exchange for a bite at other product opportunities like credit cards and insurance.

However, competition has heated up amongst mortgage brokers. Besides comparison and facilitation of mortgages, brokers are also sharing income with borrowers on an ongoing basis, monitoring lender performance and facilitating switching when the lender drops the ball. This sector has the greatest latitude available to benefit the consumer and stimulate competition.

Whilst there are several factors encouraging this, perhaps the most significant is number of small businesses vying for business in the mortgage broking sector. There are only around 120 mortgage lenders and some 12,000 mortgage brokers that compare and arrange loans with these lenders.

Unfortunately, rogue operator have emerged in the absence of a strong regulatory framework and policing. Although these operators are the minority, it is difficult for consumers to identify and avoid them. This has also allowed regular media vilification of the sector.

In terms of why lenders have not simply jacked rates by 2% in one go, I suspect the answer is backlash risk. After all, 2% of say a $300,000 loan is $6,000 - a great incentive to overcome market inertia and early exit penalties. Why would lenders expose themselves to such a risk, when they can march forward incrementally and moderate the risk?

The question is why, with this alarming trend, has nothing been done to moderate or stop them?