Buyer beware amid outbreak of bank competition

Posted on 21/02/2010  

Property consumers should be wary of aggressive home loan advertising following the outbreak of competition between Australia’s big four banks. 

National Australia Bank’s attack on other major banks – ANZ, Commonwealth Bank andWestpac – was designed to differentiate them by offering to pay the $700 exit fee for Westpac and Commonwealth Bank customers who switch their home loan toNAB. 

Westpac responded by eliminating its application fee and offering discounts of up to 0.8% on some home loans. 

Many smaller institutions are also offering new products and marketing initiatives. UBank (wholly owned by NAB) is set to launch a competitive home loan soon and ING Direct is offering to pay new customers $1,000 towards their break costs if they switch home loans from another lender and open an Orange Everyday transaction account by June. 

Damian Smith, CEO of financial comparison website RateCity, says that while competition is picking up borrowers should be wary of promotions in major advertising campaigns – as they may end up costing them more in the long run. 

“We are delighted to see some of the major banks and other lenders competing harder for home loans by offering incentives like paying for exit fees and dropping application fees,” Smith says. 

“But application and exit fees are a small part of the overall cost of home loans and exit fees will be outlawed from July 1 for new mortgages, so it’s important to compare other features and charges such as the interest rate and ongoing fees. 

“For instance, NAB’s annual fees for its residential home loans cost up to $750 per year, which could end up costing you $18,750 over 25 years.” 

Smith says borrowers should always do the calculations for themselves and work out the costs of different mortgages before jumping in. 

“The major banks are prepared to negotiate on their home loans but their advertised rates and ongoing fees remain less attractive than other players in the market. On average, the major four banks’ ongoing annual fees ($248) are more than three times that of other lenders ($76).” 

ENDS

 

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