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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