FBAA questions banks' move to build war chest

The move would enable the banks to "buy business" to increase their profits, the association claims

FBAA questions banks' move to build war chest

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The Finance Brokers Association of Australia said it is sceptical about the big banks' setting aside hundreds of millions of dollars to fund big discounts for property borrowers.

The association is reacting to a recent report by The Australian Financial Review that said the big four have built a war chest of more than $600m to allow them to offer deep discounts and attractor rates in order to grab market share in a slowing property market.

These banks are said to be offering the best rates in more than 60 years to borrowers with 20% deposits, a good credit record and regular income.

"The big four have built at least $600m for incentives into their lending books through savings from tougher lending standards, higher interest only rates, low returns on deposits, bigger margins and cheaper overseas' funding costs," said the report.

If this is true, it in essence enables these banks to "buy business" to boost their profits and databases, said FBAA executive director Peter White.

Westpac is among the big banks that have started discounting their rates. It launched in December a variable rate of 3.59% for owner occupied (P&I) loans, which it says is its lowest rate since 1956.

White said the first thing that comes to mind with these deep discount offers is 'buyer beware'. 

“Nothing comes for free, and if it seems too good to be true, it probably is,” he said, pointing out that cheap introductory interest rates by lenders are nothing new.

The strategy by the big four "is also about encouraging borrowers to swap lenders, so it's not just about buying property", said White.

“Once you’re on the hook, the big banks increase the margins on their existing loan books and make a huge profit to benefit their shareholders, their own jobs and pockets."

FBAA recently expressed disappointment over the big banks’ seeming lack of interest in trying to work with borrowers by raising their home loan rates instead of dropping them.

White said the association encourages the banks "not to stab borrowers in the back with out of cycle interest rate movements, or unjustified fee hikes".

Related stories:
Association calls on big banks to drop rates
Major bank ditches “instant mortgage” plan
Non-major joins rate-slashing fray

 

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