Season’s Greetings! Wishing you a prosperous 2019!

Didn’t 2018 just fly by? And what a year it was too!

The RBA left the official cash rate on hold at 1.5% throughout the entire year – but that didn’t stop the banks sneaking in the odd rate rise of their own.

APRA cracked down on the banks to tighten their lending standards – which has made it a little harder to obtain finance if you don’t have your ducks in a row.

And the Royal Commission shone its spotlight on serious misconduct and poor lending standards by some of Australia’s biggest banks – which will hopefully only continue to improve competitiveness amongst lenders moving forward.

Recap aside, we are sincerely thankful for your support over the past twelve months.

It’s been an absolute pleasure working with you towards your finance and lifestyle goals.

Whether you’re celebrating the festive season with family and friends, or getting away somewhere nice and relaxing, we hope you have a wonderful break over the summer holidays.

Here’s to a prosperous 2019!

We look forward to working with you again in the year ahead.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Banks’ unclear pricing costing frustrated borrowers thousands

,

Borrowers who don’t shop around due to the banks’ unclear pricing tactics are losing out on an average of $850 a year, an ACCC report has found.

Get a load of this: there’s this tactic that the big four banks (ANZ, CBA, NAB and Westpac) use that makes it “difficult” and “frustrating” for borrowers to discover their best home loan offer.

The tactic is called discretionary pricing, and the Australian Competition and Consumer Commission (ACCC) has just released a scathing report on it.

So what is discretionary pricing?

The banks don’t really advertise their best home loan deals. But there are two kinds of discounts that they do offer.

The first is their “advertised discounts”, which are generally published on their website and relatively easy for borrowers to discover.

The second is “discretionary discounts”, which are much harder to find.

Discretionary discounts are offered on a case-by-case basis to individual borrowers, usually after the lender has assessed their application.

However, the criteria for discretionary discounts is generally not disclosed to borrowers.

So what’s the problem?

Basically, the banks are intentionally making it pretty damn hard and time-consuming for borrowers to obtain accurate lowest interest rate offers from multiple lenders.

In doing so, they’re hoping you’ll just get too frustrated and put the whole ‘searching around for a better deal’ thing in the too-hard-basket.

The ACCC says that’s how it was for 70% of recent borrowers from one bank – they obtained just one quote before taking out their residential mortgage.

“The lack of transparency in discretionary discounts makes it unnecessarily difficult and more costly for borrowers to discover the best price offers,” says the ACCC.

“This adversely impacts borrowers’ willingness to shop around, either for a new residential mortgage or when they are contemplating switching their existing residential mortgage to another lender. The unnecessarily high cost that prospective borrowers incur to discover price information from lenders causes inefficiency.”

How effective is this tactic?

Extremely so.

The rate of borrowers switching lenders remained extremely low last financial year.

In fact, less than 4% of borrowers with variable rate residential mortgages with the top five banks refinanced to another lender, says the ACCC.

That’s just 1 in every 25 mortgages.

(It’s also worth noting that only 11% of people got a better home loan deal from their current bank by either asking for it or being offered it.)

“The big four banks profit from the suppression of borrower incentives to shop around and lack strong incentives to make prices more transparent,” says the ACCC.

How much are these opaque tactics costing some borrowers?

In two words: A lot.

The ACCC believes an existing borrower with an average-sized residential mortgage who negotiates to pay the same interest rate as the average new borrower could initially save up to $850 a year in interest.

“This could add up to tens of thousands of dollars over the full term of their residential mortgage in net present value terms,” the ACCC adds.

So will the banks stop doing it?

Unlikely. Well, anytime soon that is. Here’s what the ACCC say about it:

“At least one Inquiry Bank appears to be aware of borrower frustration with discretionary pricing. There is little evidence of any Inquiry Bank responding to that frustration by moving away from the practice,” the ACCC says.

“More generally, the Inquiry Banks, particularly the big four banks, lack a strong incentive to reduce the cost that prospective borrowers incur to discover price information because they profit from the suppression of borrowers’ incentives to shop around.”

So what can I do about it then?

That’s the easy part. Get in touch with us to discuss your refinancing and/or renegotiating options.

By teaming up with us, not only can you save yourself the headache of having to research what each lender’s best available discount is, we will happily negotiate for it on your behalf.

So if you’re interested in potentially cutting down the amount of interest you pay each year, give us a call today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Bank wanted mortgage broking fees transferred to customers

A big four bank almost overhauled its broker remuneration model so that the cost of mortgage broking services would be transferred to the customer, the royal commission heard. Here’s how to prevent that from happening.

The Royal Commission recently revealed that back in 2017 the Commonwealth Bank planned to replace commissions paid to mortgage brokers with a flat fee, but baulked at the last minute.

CBA’s CEO Matt Comyn told the royal commission that CBA believed the most attractive model was one where “customers would pay a broker”.

The move would have saved CBA $197 million over five years if everyone in the market moved with them.

However, without regulator intervention to drive an industry wide move to this model, CBA feared they’d be left hung out to dry by the other big three banks.

“We came to a view that nobody will follow and we will suffer material degradation in volume,” Comyn said.

Not only would this model be a major disadvantage to consumers going forward, it would reduce a new broker’s revenue on an average loan to about a third of what it currently is.

Basically, the only real winner would have been the big banks.

Not the customers. Not the mortgage brokers.

The banks.

Some interesting stats

Here are some interesting statistics from Deloitte Access Economics that may explain why CBA was looking to limit the growth in the mortgage broking market:

– Over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).

– 27.9% of residential loans are arranged through lenders other than the big four banks and their affiliates, providing competition and more choice for consumers.

– On average, mortgage brokers have 34 lenders on their panel and use 10. It’s this additional choice that adds competition in the market. The only winners from less competition are the big banks.

– 56% of residential loans were settled by mortgage brokers in the September quarter in 2017. This is up from 44% since 2012.

– 70% of a broker’s business comes directly or indirectly from existing customers, demonstrating high levels of customer satisfaction.

– 9 out of 10 customers are satisfied with the services provided by mortgage brokers.

It’s still a live issue

Basically, the only reason CBA didn’t pull the trigger on the move was because it was worried that if it did, the other lenders wouldn’t join them. Instead, they’d swoop in and steal their business.

However, if the regulator enforced a flat fee model, then all the lenders would have to get onboard.

That’s exactly what could happen if it becomes a royal commission recommendation, which is a possibility considering the extensive line of questioning from the royal commission’s counsel assisting, Rowena Orr.

How can you help?

The best way is to contact your local MP to let them know you’re happy with the mortgage broking service currently being provided.

By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.

Additionally, head over to the The Adviser and Momentum Intelligence survey to share your experience with us. It’s anonymous and only takes two minutes to complete.

If you’d like any more information on this issue don’t hesitate to get in touch. We’d love to speak to you more about it.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Buy now, pay later schemes putting young shoppers at debt risk

,

One in six customers who use payment methods such as Afterpay and Zip Pay run into financial strife – and ASIC is putting the ‘buy now, pay later’ industry under the spotlight.

ASIC’s first review of this evolving market finds that buy now pay later arrangements are having a negative impact on spending habits, especially those of younger consumers.

Six buy now pay later providers were reviewed, including Afterpay, zipPay, Certegy Ezi-Pay, Oxipay, BrightePay, and Openpay.

Over-commitment

ASIC identifies a real risk that some buy now pay later arrangements increase the amount of debt held by consumers and contribute to financial over-commitment.

It finds that 1 in 6 users (16%) believe they have experienced at least one type of negative financial impact due to a buy now pay later arrangement.

In fact, 7% delay paying other bills, 5% borrow money from family or friends, and 4% get a loan or cash advance on their credit card to pay the money back.

Those who do pay it off on time? Well, 1 in 4 users (23%) use a credit card to make their repayments anyway.

Users are young and earn less

Interestingly, 60% of buy now pay later users are aged between 18 and 34 years old and more than 2 in 5 users (44%) have an annual income of less than $40,000.

Prices sometimes inflated

Each provider in ASIC’s review contractually prevents merchants from charging consumers higher prices for using a buy now pay later arrangement.

However, ASIC has received anecdotal evidence that some merchants may be charging consumers significantly higher prices for using a buy now pay later arrangement for purchases over $2,000, or where the price is less transparent and ‘negotiable’ (eg. solar power products, services).

More expensive, spontaneous purchases

Buy now pay later arrangements result in 81% of consumers buying a more expensive item than they would have otherwise been able to afford.

Seven in 10 users are now also making more spontaneous purchases.

As a result, as of 30 June 2018, there was a whopping $903 million in outstanding buy now pay later balances across Australia. That’s $37 for every man, woman and child in Australia.

Potentially unfair contracts

Finally, in ASIC’s view, each buy now pay later provider includes terms within their standard contracts that are potentially unfair to consumers.

They also provide a very broad range of circumstances under which a consumer will be regarded to be in ‘default’ and hold consumers liable for unauthorised transactions, even when the provider knows or suspects the transaction may be unauthorised.

What next?

Given the potential risks to consumers, ASIC has supported extending proposed product intervention powers to all credit facilities regulated under the ASIC Act.

Basically, this would provide ASIC with a much more flexible tool kit to address emerging products and services such as buy now pay later arrangements.

It could also ensure ASIC can take appropriate action where significant consumer detriment is identified.

What you can do in the meantime, however, is only shop for items you can afford through better budgeting so that your important debts, such as your mortgage, don’t become stressed from a flow-on effect.

That’s something we can help you with.

And if you do really want something that you need to take out a loan to purchase an item such as a car then give us a call.

There are a number of reputable and responsible lenders to choose from that operate under the National Consumer Credit Protection Act, unlike buy now pay later providers.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Property round up: NSW overhauls stamp duty, NAB increases rates

There’s been a couple of fairly big property-related announcements recently, including a stamp duty overhaul in NSW and NAB increasing interest rates. Let’s break down what they could mean for you.

NSW stamp duty overhaul

First, let’s start with the good.

The NSW Government recently announced it will peg stamp duty to the rate of inflation. It’s the first state to do so after leaving its current system largely unchanged for over 30 years.

In a nutshell, the seven different price brackets that determine how much stamp duty NSW homebuyers pay will be adjusted to the Consumer Price Index (CPI).

Why does this matter?

Well, over the past 15 years the average rate of stamp duty in NSW rose from 3.37 per cent to 4.05 per cent.

At the same time, the median house price in Sydney rose from around $400,000 to $1 million.

The NSW government says the changes, which are effective from July 1, will ensure the tax on housing does not continue to grow.

The immediate savings will be “modest” – think in the ballpark of $500 by 2021 – but they will become more substantial for home buyers over the long run.

A couple of quick examples to break it down

If stamp duty brackets had been indexed to CPI 15 years ago, for example, the amount payable on a $500,000 home would be around $2000 lower today.

Meanwhile, the amount payable on a $1.5 million home would be around $6400 lower.

“Whether you are a first homebuyer, a downsizer or upgrading to the family home you will ultimately benefit as a result of this reform,” says NSW Treasurer Dominic Perrottet.

So will other states follow suit? Well, that remains to be seen, but this is a great first step.

NAB Increases mortgage rates for new borrowers

Ok, now time for the not-so-good news.

The National Australia Bank (NAB) recently announced it’s slashing the discount offered to new borrowers from 0.48% to 0.30%.

That effectively translates to a rate of 3.87%, up from 3.69%.

The new rate applies to all new principal and interest loan customers. The good news is that NAB has committed to keeping its standard variable rate on hold for existing customers for as long as is reasonably possible.

What next?

NAB’s move comes just two months after Westpac, CBA and ANZ raised their own interest rates.

At the time, NAB said it wouldn’t raise rates so that it could rebuild trust with customers following the Royal Commission report into mortgage lending practices.

The big question is: will the other banks follow suit once again and increase rates further? That remains to be seen, but the message is clear: interest rates are going up.

Actions you can take to combat rising interest rates include shopping around, locking in a rate, or consolidating your debts.

If you’d like help putting any of the above strategies into place, get in touch with us today. We’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.