November 10, 2009
Be sure to shop around for home loans with lower fees and better features as the economy warms up in time for Christmas and lenders become eager to compete for market share, by Jackie Pearson.
As the year comes closer to an end, Australia’s real estate market slows down for the holiday season. So too does the home loan industry which is when many lenders take the opportunity to lure new customers.
RateCity CEO Damian Smith says packaged deals are where you are likely to find the most competitive home loan offers in the months ahead.
“We think you can expect to see the banks more willing to negotiate privately and offer packaged deals that are not advertised, especially to customers who bring a lot of other business, such as insurance, to the bank with their home loan,” says Smith.
“So don’t take the first offer, is our first piece of guidance for borrowers. Make sure you shop around and negotiate.”
Although it is the major banks that can include the most in packages, including fee-free transaction accounts and insurance discounts, Smith says most lenders are now bundling some other products, such as credit cards, with their home loans.
Hungry for market share
“The overall picture is that there is a more competitive home loan market emerging,” says Smith. “Both banks and non-banks are more willing to chase market share again.”
While the global financial downturn had made it difficult for anyone but the big banks to raise capital, “for institutions other than the big four banks their ability to raise funds through global capital markets has improved substantially in recent months,” he says.
Relatively small players in the Australian home loan market, like Members Equity Bank, have had a major part in re-igniting competition, according to Smith.
ME made global headlines when it was the first institution since the collapse of Leehman Brothers last year to raise capital by issuing Residential Mortgage Backed Securities (RMBS) without using a government safety net.
According to Smith, Bankwest will continue to be used “as a bit of a test lab” for innovative home loan products in the Australian marketplace. For example, the Bankwest Rate Tracker home loan promises to keep your variable rate 1 percent lower than the average standard of the big four banks.
It comes with a two-year introductory rate. Alternatively the Bankwest Capped Rate home loan protects your rate in the event of official rate rises until November 2012.
Smith says while there will be competition around fees and features, there’s no doubt rates will go up over the next year.
“Borrowers should factor in between $200 and $300 per month in additional costs by the end of next year,” he says.
The key to finding a home loan surprise under your Christmas tree this year is to be prepared to negotiate with lenders to ensure you walk away with something better than their advertised offers.