Non-major announces Australia’s first tracker loan

by Miklos Bolza18 Oct 2016
Auswide Bank has announced a new rate tracker home loan which is believed to be the first loan of its kind on the Australian market.
The loan will track the movements of the Reserve Bank of Australia (RBA) with the attached interest rate increasing or decreasing as the RBA shifts its own rate.
“We’re guaranteeing that within two days of the RBA making a rate decrease, we will reduce the rate of the particular loan by the same amount. Equally if the RBA increases its rates, within two days we will increase the interest rate,” Martin Barrett, managing director of Auswide Bank, told Australian Broker.
This move goes against the opinions of most of the major banks with NAB, CBA and Westpac expressing their reluctance about tracker mortgages in the recent banking inquiry. Only ANZ said it was open to offering the product.
The variable interest rate of Auswide’s tracker loan has been launched at 3.99% which comes from the RBA cash rate of 1.5% plus a margin of 2.49%. The loan also comes with a floor, Barrett said. “If interest rates were to fall to minus interest rates, then the lowest rate that a client would pay would be 2.49%.”
This loan is only available for owner-occupiers seeking to borrow or refinance $150,000 or more. As well as a maximum LVR of 80%, the borrower also has the ability to make additional payments or redraw.
While there are no ongoing monthly fees, there is an establishment fee of $300.
Although Auswide has been working on the prototype of this product for some time, the fact that tracker mortgages have been pushed into the spotlight meant the timing was right for launch.
“The most recent level of focus around this area has encouraged us to get this product out to the marketplace,” Barret said. “I think the timing is good for a number of reasons not least of course is that there’s a significant amount of interest around these loans.”
The tracker loan meets the needs of customers who prefer a variable rate that offers transparency and certainty around what happens when the RBA rate changes.
“Auswide Bank’s funding is not strictly tied to the RBA cash rate yet we still have the flexibility to maintain a competitive overall operating margin and pay our depositors and investors competitive interest on their savings and term deposits.”
Barrett said that there was no reason why the big four could not also offer tracker mortgages.
“Could the big banks do it? Yes they could. They just have to think about the way that they prudently do it matched to their risk profile and their portfolios.”
However, he suggested that the banks be the ones to decide whether or not to offer these loans as opposed to government intervention.
“Offering products such as this without the need for regulators or for government to impose requirements on the industry is prudent so we are able as an industry to provide this type of product and manage our own risk.”
The RBA Rate Tracker Loan was available from yesterday (17 October) through Auswide Bank branches and accredited mortgage brokers.