MPA asks a top economist and two leading brokers whether more lenders should offer tracker loans as an option for their customers.
MPA asks a top economist and two leading brokers whether more lenders should offer tracker loans as an option for their customers.
Shane Oliver
Head of investment strategy and chief economist
AMP Capital Investors
There is a strong case for more lenders to offer tracker loans. This is not because they will result in a better deal for borrowers. In fact, they may not if the lender’s funding cost falls relative to the cash rate and there is an outbreak of competition between lenders.
Rather, the case for tracker loans is that they provide another option for borrowers beyond traditional variable-rate loans and fixed-rate loans and that they offer a degree of certainty.
The period between 1997 and 2007 where average bank standard variable rates moved at a margin of 1.7%-1.8% above the official cash rate was unusual, reflecting low funding costs and those costs moving with the cash rate. This was not the case pre-1997 and is not the case now. But this period did provide a degree of confidence as to what borrowers would pay over the cash rate and it is this benefit that tracker loans would provide.
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Ren Wong
CEO
N1 Holdings
I think a rate-tracker mortgage risks misleading borrowers. A professional mortgage broker would tell borrowers that a rate is not the only factor in getting a loan – there are fees and structures of loans and product features to consider before deciding which lenders to go with.
Ultimately, the purpose of having a rate-tracker loan is to have transparency and to make sure lenders are honest to pass on rate cuts, but a lot of consumers don’t know that the standard variable rate is only a quoted rate; banks and lenders do pricing based on their costs of funding and a client’s profile, which is why it’s more important to speak to a mortgage broker and not just talk to a single bank.
Promoting a rate-tracker mortgage is like telling everyone rate is the only thing you would care about when taking out a home loan. Instead, this will hurt borrowers. And besides, there are fixed-rate products and interest-in-advanced products in the market that are worth considering.
Joe Del Borrello
Director/finance manager
Launch Finance
This is a good question and one that is sure to be asked a few more times once consumers start to understand the subject further.
I think it is a bit of a no-brainer. When speaking about this type of product, wouldn’t you think this is a great product for the consumer so they know the exact terms of the loan for the life of the loan? It gives greater clarity for consumers to budget for home loan repayments and will let them understand the home loan better.
However, while one lender has brought this product out to the market, we are yet to hear about the take-up or enquiry into this loan. If the lenders bring in fees and charges that may make the loan more expensive, you will still need to review this type of home loan to another loan that may not offer the tracker feature.
My opinion is, yes, this would be good for the market. However, I still need to see what other conditions may come with the loan.
Shane OliverHead of investment strategy and chief economist
AMP Capital Investors
There is a strong case for more lenders to offer tracker loans. This is not because they will result in a better deal for borrowers. In fact, they may not if the lender’s funding cost falls relative to the cash rate and there is an outbreak of competition between lenders.
Rather, the case for tracker loans is that they provide another option for borrowers beyond traditional variable-rate loans and fixed-rate loans and that they offer a degree of certainty.
The period between 1997 and 2007 where average bank standard variable rates moved at a margin of 1.7%-1.8% above the official cash rate was unusual, reflecting low funding costs and those costs moving with the cash rate. This was not the case pre-1997 and is not the case now. But this period did provide a degree of confidence as to what borrowers would pay over the cash rate and it is this benefit that tracker loans would provide.
Ren WongCEO
N1 Holdings
I think a rate-tracker mortgage risks misleading borrowers. A professional mortgage broker would tell borrowers that a rate is not the only factor in getting a loan – there are fees and structures of loans and product features to consider before deciding which lenders to go with.
Ultimately, the purpose of having a rate-tracker loan is to have transparency and to make sure lenders are honest to pass on rate cuts, but a lot of consumers don’t know that the standard variable rate is only a quoted rate; banks and lenders do pricing based on their costs of funding and a client’s profile, which is why it’s more important to speak to a mortgage broker and not just talk to a single bank.
Promoting a rate-tracker mortgage is like telling everyone rate is the only thing you would care about when taking out a home loan. Instead, this will hurt borrowers. And besides, there are fixed-rate products and interest-in-advanced products in the market that are worth considering.
Joe Del BorrelloDirector/finance manager
Launch Finance
This is a good question and one that is sure to be asked a few more times once consumers start to understand the subject further.
I think it is a bit of a no-brainer. When speaking about this type of product, wouldn’t you think this is a great product for the consumer so they know the exact terms of the loan for the life of the loan? It gives greater clarity for consumers to budget for home loan repayments and will let them understand the home loan better.
However, while one lender has brought this product out to the market, we are yet to hear about the take-up or enquiry into this loan. If the lenders bring in fees and charges that may make the loan more expensive, you will still need to review this type of home loan to another loan that may not offer the tracker feature.
My opinion is, yes, this would be good for the market. However, I still need to see what other conditions may come with the loan.
