Pursues balanced approach, looking after existing customers
In what it describes as a hotly contested refinance market, Auswide Bank is sticking to its ethos: helping Australians achieve homeownership.
Considered the smallest of Australia’s listed entities, Auswide Bank has a balance sheet of around $4bn. In October, the bank won the Canstar 2022 Bank of the Year: Fixed Rate Home Loan Award, in recognition of its consistently low interest rates for short-term (one to two years) and medium-term (three-year) fixed home loans.
The current market of rapidly rising interest rates has seen cashback deals become increasingly prevalent. But Auswide Bank is opting to attract its customers through product features and pricing that’s relatively sharp in line with the market.
Following the November cash rate hike, along with the four banks and many other non-majors, Auswide Bank announced it would pass on the 0.25% increase to its existing variable rate customers, effective from Nov. 15.
Read more: Non-major banks raise variable mortgage rates
MPA caught up with Auswide Bank chief customer officer Damian Hearne (pictured above) to discuss the bank’s strategy on interest rates, in view of current market and economic trends.
In what has been described by economists as the fastest monetary tightening cycle since 1994, after a seventh successive official cash rate rise, Hearne said it was becoming increasingly difficult to get a current picture of what lenders are charging, and how Auswide Bank rates compare.
Following the 25-basis point cash rate rise in October, Auswide Bank moved its existing and new customer pricing fairly quickly, he said.
“What we discovered is in the new space, we put ourselves in a relative position in some of our new lending rates that we didn’t want to be in,” Hearne said.
The 25-basis point increase to variable home loan rates in November would initially be passed on to existing customers only, while Auswide Bank pauses to see where interest rates land.
“We’ve moved our existing … we’ll move our new, but we’re waiting to see where the market settles,” Hearne said.
Although some lenders are offering different rates to new and existing customers, Hearne said it was important to the bank to strike the right balance.
“There’s no point giving it all away to your new [customers] and not looking after your existing … why spend time and energy acquiring if you’re not going to support your existing,” Hearne said.
Read next: Auswide Bank enjoys 7.3% loan book growth
He also acknowledged that higher competition driven by rising interest rates meant many banks were using cashback incentives to lure new customers (in some cases, up to $6,000 for each loan).
“We’re now staring into a very hotly contested refinance market, where cashback is playing a larger and larger game,” Hearne said.
While Auswide Bank understood its lending rates needed to be relatively well-priced, Hearne said the bank steered away from cashback incentives, opting to use other incentives, such as discounts on rates applying to a second (investment) property, as a point of differentiation.
The bank was also of the view that cashbacks lured customers on the basis of a lump sum, rather than product features that helped them achieve their goal to own a home, he said.
“The home loan is an important component of that, but ultimately we want customers for a longer period, and I think cashback promotes churn,” Hearne said.
In response to borrowers’ current interest rate preference, Hearne said he had not seen a noticeable shift from variable rates back towards fixed rates.
However, the bank recognised that certainty is still an important requirement for a portion of the population, Hearne said. Having updated its peak inflation forecast to 8%, the RBA has indicated interest rates will increase further over the period ahead.
Referring to the significant proportion of home loans due to roll off lower fixed interest rates onto higher variable rates, more widely referred to as the ‘fixed rate cliff,’ Hearne noted that when the official cash rate was 0.10% (pre-March 2022), the bank’s fixed rates were around 2.09%.
Since March, the RBA has increased the cash rate by 275-basis points, meaning customers would be rolling off onto a potentially 7% variable interest rate market.
Hearne said Auswide Bank had just launched a special fixed rate offer of 4.89% for two years, which applies to all new lending, including existing customers increasing their borrowing.
“There’s your 275 basis points straight onto your new customer special pricing … we’ve pretty much kept [pricing]in line, but as a smaller bank, we have to be relatively sharp on pricing in regard to where the market is,” he said.
The bank’s Home Loan Plus Freedom Package was recently recognized by Canstar, which awarded Auswide Bank the 2022 Bank of the Year: Fixed Rate Home Loan Award. Hearne said the bank viewed the product as enabling customers to realise their goal of homeownership.
“From multiple offsets, the ability to make bulk payments, to top up to a reasonable amount (add a pool or kitchen), and there’s also the ability to use it for construction,” Hearne said.
One of the more unique features of the freedom package is that customers have the ability to make a reasonable top-up (e.g., up to $100,000) to make improvements to their home. Rather than have two loans, the bank enabled customers to borrow within the fixed rate the mortgage is already on, Hearne said.
Looking ahead, Hearne acknowledged that while arrears and hardships were still at record lows, with rising interest rates, high inflation, and Christmas just around the corner, some customers would be doing it tough.
Through discussions with brokers and customers, the bank continually spoke about the importance of borrowers not being ashamed to put their hand up if they were experiencing difficulty.
“It’s about engaging with us and working with us … our job is about helping people achieve homeownership is never about the loan – it‘s about helping them with their needs,” Hearne said.
