Brokers need to educate about standard variable rate

by Julia Corderoy29 Oct 2015
Brokers should be educating referral partners and clients about standard variable rates as the rate hikes dominate media reports, a leading broker has said.

Speaking to Australian Broker, managing director of House + Home Loans, Rael Bricker, said the standard variable rate is often only used as a measure of comparison. It is rare that a customer is locked in to the standard variable rate.

“Standard variable rates are not the rates you should be looking at – you have got to look at their discounted tiers. The standard variable rate is a furphy because no broker settles the standard variable rate.”

Bricker’s comments come after NAB announced rate increases across both its direct branch arm and third party arm, NAB Broker – but the standard variable rate advertised for NAB Broker was 3 basis points higher, at 5.63%, than the standard variable rate advertised for going direct to a NAB branch.

“If you’ve got a single loan with NAB Broker, even though you may be paying 0.03% higher it actually comes out cheaper because of the lower monthly fee. For NAB Broker, the $10 a month fee includes your offset account, whereas if you own the package with ‘red star’ [NAB branch] you have to pay their annual package fee. 

“The ‘red star’ has its own discounting for investment and owner-occupied rates and NAB Broker have a different set of tiers and discounts at certain borrowing levels. NAB is also still reasonably negotiable on the NAB Broker side. If you ask for discounts from the NAB Broker channel, you are generally getting them for loans above the $400,000 or $500,000 mark. 

“What that means is that even though you are looking at the standard variable rate, the standard variable rate is not a good measure of anything. It is only a good measure for the banks to be compared to each other in the press.”

For example, according to a product comparison run by Bricker, for a $500,000, principal-and-interest owner-occupied loan at less than 80% LVR, NAB’s tailored home loan direct from a branch has an interest rate of 4.58% after discounts. Whereas the same loan through NAB Broker – the NAB Home Plus variable rate loan – the interest rate after discounting is 4.47%.

So while referrers and clients may look at the advertised standard variable rate and think they will get a more expensive loan through a broker, it is not the case. As such, Bricker says brokers should be out there educating referrers and clients. 

“I’m doing boot camp for one of my referees next weekend and I was just talking with their management and we decided that I needed emphasise that it is not about the published rate. It is about the discount you get for the life of your loan which is more important,” he told Australian Broker.

“The standard variable rate is irrelevant. It is about the discount you are getting for the life of the loan.”

Australian Broker also reached out to NAB for an official comment on the discrepancy between the two advertised rates.

“We have a number of different home loan products with a range of indicator interest rates. NAB is committed to providing variety and flexible options for our brokers and their customers,” a spokesperson for the major bank responded.