Porges blasts 'bait and switch' lenders

by Adam Smith15 Mar 2012

Aussie Home Loans chief executive Stephen Porges has taken aim at “bait and switch lenders” who are enticing customers with rates that are “underwater”.

Speaking at the Australian Banking & Finance Mortgage Innovation conference in Sydney yesterday, Porges accused many lenders of drawing customers by taking a loss on interest rates. He said this practice represented unhealthy competition.

“We obviously love competition, and we like to bring it on whenever we can. That said, I'm somewhat concerned about unhealthy competition, and I'm concerned to a degree at the moment to see some of the lenders that are out there lending at rates that are underwater,” he said.

Porges argued that customers would ultimately be disadvantaged, as lenders would have to significantly raise rates in the future in order to protect margins. He questioned the honesty of moves by lenders to draw customers with deeply discounted rates.

“There's no doubt in my mind that it's not quite a bait and switch, but it's relatively close. APRA will come in at some point to these groups and say, 'Guys, you have to start making a return on this'. It's good for me, because customers will start churning back out, and it won't cost them any money. But I don't think it's healthy competition,” he said.

Instead, Porges contended that healthy competition revolved around a long-term view of client needs.

“Healthy competition is based around capabilities, and long-term relationship and actually valuing what the customer is trying to achieve in a holistic focus. It's not just trying to get a cheap rate,” he said.

Yellow Brick Road chief executive Matt Lawler agreed. He said the mortgage industry had moved away from being “fascinated by selling a product rather than concentrating on how to add value after the product is sold”.

“A very cheap rate on a certain day may not be the cheapest rate later on, so we have to do something to add value,” Lawler said.

Lawler commented that there were a significant number of lenders in the market, but that cheap rates were not necessarily a proper measure of the strength of competition.

“A lot of things to do with rate I'm convinced have to do with structural issues, not necessarily how many players there are in the market,” Lawler said.

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  • by Garry 15/03/2012 10:32:31 AM

    What a load of rubbish. The lenders are able to calculate the ROI for each loan and these calculations take into account commissions to the broker and the true cost of the funding. If the lenders cant afford the rate cuts then they wouldnt do it. Its almost proof that the argument regarding funding costs is not entirely based on fact. The banks are simply in tune with what the clients want and are prepared to meet the market and I say good on them. These discounts are primarily for the top brokers only and are not advertised to the general public so its not a real issue as the volume of deep discounting will not be large.

  • by Kym Dalton 15/03/2012 10:39:02 AM

    Hear hear. The focus on the short term is endemic and inappropriate- these loan terms are for 30 years, exit fee bans notwithstanding! When I first visited my (then) corporate cousins at ABN AMRO mortgage is the U.S. in the mid 1990's they absolutely thought I was kidding when I said the prevelant mortgage in Australia was a discretionary variable, not tied to a benchmark. Their direct comment was that this would invite bait and switch tactics. Maybe we should establish a bank 'consistency rating' for variable rate performance over the recent past and for the medium term? This would assist with meeting responsible lending obligations as well.

  • by Country Broker 15/03/2012 10:53:01 AM

    I must agree with these comments, bait and switch is happening, having variable rates structured as they are allows this , APRA need to look at this and ask the hard questions, it can only be assumed only the very niave or lazy borrowers are paying standard rates for a home loan. We will see an increase in broker activity as these BAIT AND SWITHCH LOANS , come out of the discounted rate term and revert to the real rate.