JULIA GILLARD and Wayne Swan are telling Australians to dump the big banks as payback for the decision by Westpac and ANZ to sever their links with the Reserve Bank's official cash rate.
The Prime Minister and Treasurer yesterday urged customers to shop around for the best mortgage in the same way that they would for any other product.
"The fact is there are better deals around and if customers are unhappy with their financial institution, I urge them to take the time and think about changing because there are many better deals out there for customers should they wish to change their financial institution," Mr Swan said.
When asked, at a news conference in Brisbane, if the latest rate rises "proved the banks are bastards", Mr Swan said: "It indicates to me that they are out of touch with their customers, that they are treating their customers badly and that is why I say to their customers, let them know what you think."
There are early signs a growing number of people are doing just that, with new figures showing people are increasingly signing mortgages with the smaller banks.
Westpac and ANZ argue they face higher funding costs as a result of increased competition for new deposits. But the move is a game changer for banks and their customers, who are now exposed to higher and more frequent interest rate rises.
The head of campaigns for the consumer group Choice, Matt Levey, said consumers should view rate rises by ANZ and Westpac "as their invitation to shop around". He said "the actions of ANZ and Westpac raise questions about whether there is any genuine competition by the major banks."
The Commonwealth Bank and National Australia Bank are yet to announce if they will follow suit.
A spokesman said NAB was committed to having the "lowest standard variable home loan rate of the major banks" and would watch competitors. The Commonwealth echoed the line that its rates were under review, as did the Bendigo and Adelaide Bank. Only the Bank of Queensland said it would keep its standard variable home loan interest rates steady.
Mr Swan said his reforms of the banking sector were starting to have an effect. Figures from the Australian Prudential Regulatory Authority show the growth rate in new mortgages taken out at smaller banks is twice the rate of growth in new mortgages of the big four.
Last year, the number of new mortgages taken out at smaller banks grew 14.8 per cent.
New mortgages with the big four banks grew 7.8 per cent while the rate of growth at the next four - ING, Suncorp Metway, Bank of Queensland and the Bendigo and Adelaide Bank - grew 8.1 per cent. Treasury estimates the value of the mortgages held by the smaller banks is now $9.7 billion.
Mr Swan said the government's decision to abolish exit fees on mortgages had also given people more power.
In the five months from July, after the government's ban on exit fees, about 320,000 new mortgages were taken out. This is estimated to grow to 1.1 million households by the end of this year and nearly two million by the end of next year. Ms Gillard said it had "never been easier" for customers to change banks if they were unhappy with their product.
The opposition's treasury spokesman, Joe Hockey, ridiculed Mr Swan's attempts to bring the banks to heel and said he expected the Commonwealth and National Australia banks to also raise rates.
"Since 2008, Wayne Swan has warned the banks 53 times not to go outside the movements of the Reserve Bank," he said. "He has been ignored on over 40 occasions.
"Now Wayne Swan's advice to consumers is to simply walk down the road for a better deal. This is no use if down the road does not have a better deal."
Frequently Asked Questions about this Article…
Should I switch banks after Westpac and ANZ raised their mortgage rates?
The Prime Minister and Treasurer urged customers to shop around for a better mortgage deal after Westpac and ANZ moved away from the Reserve Bank’s official cash rate. The article notes the government has abolished mortgage exit fees, making switching easier, and APRA data shows growing flows to smaller banks. If you're unhappy with your rate, the article’s message is to compare offers and consider switching — but check your own loan terms and options first.
Why did Westpac and ANZ change their mortgage rates and ‘sever links’ with the RBA cash rate?
According to the article, Westpac and ANZ say they face higher funding costs because of increased competition for new deposits. That led them to move away from mirroring the Reserve Bank’s official cash rate and lift some home loan rates, which the government and consumer groups criticised.
Which banks have announced rate changes and which have not?
The article reports that Westpac and ANZ have raised rates. The Commonwealth Bank and National Australia Bank (NAB) had not yet announced whether they would follow. NAB said it aims to have the lowest standard variable home loan rate among the major banks and is watching competitors. Bendigo and Adelaide Bank and Commonwealth said their rates were under review, while the Bank of Queensland said it would keep its standard variable home loan rates steady.
Are smaller banks really attracting more mortgage customers?
Yes. APRA figures cited in the article show new mortgages at smaller banks grew 14.8% last year — about twice the growth rate of new mortgages at the big four, which rose 7.8%. The next four banks (ING, Suncorp Metway, Bank of Queensland and Bendigo and Adelaide Bank) grew 8.1%, and Treasury estimates the value of mortgages held by smaller banks is around $9.7 billion.
How has the government’s ban on mortgage exit fees affected switching and new mortgages?
The article says the government’s abolition of exit fees has made it easier to change lenders. In the five months from July after the ban, about 320,000 new mortgages were taken out. The piece cites estimates that this could grow to 1.1 million households by the end of the year and nearly two million by the end of next year.
What do consumer groups say about the recent bank rate rises?
Choice’s head of campaigns, Matt Levey, said consumers should treat the ANZ and Westpac rate rises as an invitation to shop around. He also questioned whether the major banks are providing genuine competition, implying customers could find better deals elsewhere.
Is it likely the other major banks will also lift home loan rates?
The article reports differing views. Opposition treasury spokesman Joe Hockey expected the Commonwealth Bank and NAB to raise rates as well. At the time of the article, Commonwealth and NAB had not confirmed moves and said rates were under review, with NAB signalling it would monitor competitors closely.
What does this banking shake-up mean for everyday mortgage holders?
The article suggests mortgage holders may be exposed to higher and more frequent interest rate rises if lenders move off the RBA cash rate. On the positive side, increased competition and the ban on exit fees have encouraged customers to shop around, and smaller lenders have been growing their mortgage business — so everyday borrowers may find better deals if they compare options.
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