Westpac's alluring package
Westpac is going to extraordinary lengths to convince customers holding RHG mortgages to dump their non-bank loan originator.
Westpac has launched one of the most generous home loan refinancing offers seen in Australia in a bid to entice former RAMS Home Loans customers to dump their non-bank loan originator and take out a Westpac loan.
The bank is offering to pay certain RAMS home loan customers up to $5,000 to cover the cost of early termination fees on the old loan and new mortgage insurance premiums at Westpac.
The aggressive marketing campaign is the latest in a series of blows against RHG, the former holding company for the RAMS group. It comes six months after Westpac completed the purchase of the RAMS brand, national franchise network and associated contracts to operate the business.
The Westpac purchase of the RAMS business left RHG with a mortgage book of $11.54 billion. The book is closed and in run-off. As part of the Westpac deal, which delivered RHG a profit of $103 million, RHG cannot write new loans for three years.
Westpac's new franchise network is using the old RAMS database to source information for sending letters to about 2,000 customers inviting them to take up the generous switching package.
The bank could not have picked a better time to target the holders of RAMS mortgages. RHG has been forced to raise interest rates sharply over the past six months to cover higher funding costs. Discounts being offered by Westpac mean that it can offer interest rates much lower than those being paid by holders of mortgages managed by RHG.
The standard variable rate at RHG is about 9.5 per cent compared to 9.61 per cent at Westpac. However, Westpac is offering a discount of about 0.7 per cent taking its standard rate down to 8.91 per cent.
Westpac says the RAMS franchisees who now work for Westpac have maintained their contact with many RHG customers and the offer presented an opportunity to renew the relationship.
The generous switching offer has highlighted the heavy costs that can be involved in switching a home loan from one provider to another. ASIC has published a report into home loan entry and exit fees as part of a move by treasurer Wayne Swan to make it easier to switch home loans.
Home loan exit fees, known as deferred establishment fees, are seen as deterrent to changing home loan providers particularly in the first three to five years when the fees are highest.
RHG has been gaining the attention of consumer groups in recent months for its exit fees, according to submissions made to the parliamentary inquiry into competition in the banking and non-banking sector.
Consumer group Choice said RHG customers on the RHG interest saver loan were advised recently that the early termination fee had increased from $1400 in the first year, $1000 in the second year and $700 in the third year to a flat fee of $2000. Choice said RHG relied on a term in its loan contracts that purports to allow it to unilaterally vary "the amount and type of fees and charges (including by imposing new fees and charges or changing the method of calculation of a fee or charge).”
Another submission from the Consumer Action Law Centre included a case study of a self employed woman who took out a low-doc loan with RAMS, now under RHG, with an interest rate of 7.93 per cent. The rate is now 10.13 per cent and she wants to switch to get a lower interest rate and save $500 a month but faces a loan exit fee of $14,000 (calculated as a percentage on a loan of around $750,000). It is not known whether Westpac is offering to pay this fee.
ASIC is currently collecting data on mortgage entry and exit fees, focusing on the application of these fees in different circumstances, how they are disclosed to consumers, and the extent to which consumers understand what is being disclosed to them.
Treasury said in its submission to the parliamentary inquiry that this research will inform the development of disclosure requirements for credit products under the new national regime for regulating mortgages and mortgage advice, as agreed by the Council of Australian Governments.
The bank is offering to pay certain RAMS home loan customers up to $5,000 to cover the cost of early termination fees on the old loan and new mortgage insurance premiums at Westpac.
The aggressive marketing campaign is the latest in a series of blows against RHG, the former holding company for the RAMS group. It comes six months after Westpac completed the purchase of the RAMS brand, national franchise network and associated contracts to operate the business.
The Westpac purchase of the RAMS business left RHG with a mortgage book of $11.54 billion. The book is closed and in run-off. As part of the Westpac deal, which delivered RHG a profit of $103 million, RHG cannot write new loans for three years.
Westpac's new franchise network is using the old RAMS database to source information for sending letters to about 2,000 customers inviting them to take up the generous switching package.
The bank could not have picked a better time to target the holders of RAMS mortgages. RHG has been forced to raise interest rates sharply over the past six months to cover higher funding costs. Discounts being offered by Westpac mean that it can offer interest rates much lower than those being paid by holders of mortgages managed by RHG.
The standard variable rate at RHG is about 9.5 per cent compared to 9.61 per cent at Westpac. However, Westpac is offering a discount of about 0.7 per cent taking its standard rate down to 8.91 per cent.
Westpac says the RAMS franchisees who now work for Westpac have maintained their contact with many RHG customers and the offer presented an opportunity to renew the relationship.
The generous switching offer has highlighted the heavy costs that can be involved in switching a home loan from one provider to another. ASIC has published a report into home loan entry and exit fees as part of a move by treasurer Wayne Swan to make it easier to switch home loans.
Home loan exit fees, known as deferred establishment fees, are seen as deterrent to changing home loan providers particularly in the first three to five years when the fees are highest.
RHG has been gaining the attention of consumer groups in recent months for its exit fees, according to submissions made to the parliamentary inquiry into competition in the banking and non-banking sector.
Consumer group Choice said RHG customers on the RHG interest saver loan were advised recently that the early termination fee had increased from $1400 in the first year, $1000 in the second year and $700 in the third year to a flat fee of $2000. Choice said RHG relied on a term in its loan contracts that purports to allow it to unilaterally vary "the amount and type of fees and charges (including by imposing new fees and charges or changing the method of calculation of a fee or charge).”
Another submission from the Consumer Action Law Centre included a case study of a self employed woman who took out a low-doc loan with RAMS, now under RHG, with an interest rate of 7.93 per cent. The rate is now 10.13 per cent and she wants to switch to get a lower interest rate and save $500 a month but faces a loan exit fee of $14,000 (calculated as a percentage on a loan of around $750,000). It is not known whether Westpac is offering to pay this fee.
ASIC is currently collecting data on mortgage entry and exit fees, focusing on the application of these fees in different circumstances, how they are disclosed to consumers, and the extent to which consumers understand what is being disclosed to them.
Treasury said in its submission to the parliamentary inquiry that this research will inform the development of disclosure requirements for credit products under the new national regime for regulating mortgages and mortgage advice, as agreed by the Council of Australian Governments.
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