Press Release - Leading Non-Bank Breaks Silence on Bank Rate Rises
by Lisa Montgomery 10/01/2008
Leading lender Resi Mortgage Corporation has broken its silence on the behaviour of banks toward consumers in relation to their misrepresentation of the true impact of the US sub-prime crisis and its effect on bank interest rates.
Resi’s Head of Consumer Advocacy, Lisa Montgomery, says since August last year when the sub-prime crisis emerged, Australian banks had strategically used the global credit squeeze to disparage the reputation of non-bank lenders in a clear bid to claw back market share.
“Scaremongering by banks over the impact of the tightening credit market has done the public a great disservice – which is only now becoming obvious,” says Ms Montgomery.
“At the time major banks delivered a barrage of negative comments informing consumers that non-bank lenders would be more adversely affected (than banks) by the increased cost of funding, which would be reflected in significantly higher interest rates.
“In doing so they gave consumers the false impression that all non-bank lenders will cost them more to borrow - which is simply not true¹.”
“Banks also led borrowers to believe that the US sub-prime crisis was primarily a non-bank issue, which has never been the case. The fall-out from the situation in the US was clearly going to be an issue for all lenders.”
She says since the onset of the US credit crunch prime non-bank lenders, like Resi, acted in a responsible and transparent manner – alerting borrowers to rate increases as it became apparent that wholesale funds were costing more.
“At the heart of the issue now is the borrower,” she says. “I am sure that some consumers felt immune from the impact by aligning with a bank, and would be understandably frustrated by the latest increases, but the reality is that all lenders are affected.”
“For the first time in many years we now have a price disparity between the standard variable rate (SVR) of the big four banks,” says Montgomery. “There has been a breaking of ranks, when it comes to these advertised interest rates – which for some, could now make choosing a home loan confusing.”
However Ms Montgomery says borrowers needed to remember that despite recent distortions and volatility in the lending landscape, the agenda of non-bank lenders has not changed.
“I want to make it clear that we remain committed to developing innovative products, delivering exceptional customer service and saving borrowers money by offering low rates of interest². These very reasons are why borrowers initially embraced us following deregulation in the early 90s, and continue to do so.”
Borrowers have a choice, and I am sure that the events of the past week will have many people thinking about the alternatives.
Montgomery says people need to be aware that there is a real prospect of another official interest rate rise in February and it’s likely that we will continue to see all lenders reviewing their own interest rates in line with fluctuating financial markets.
She says non-bank lenders will continue to be part of the lending spectrum to prevent the marketplace from reverting to a bank monopoly.
“Banks may be attempting to erode the competition, but consumers must remember that they will be financially disadvantaged if the financial marketplace is set back 20 years.”
¹ An overall review of advertised standard variable rates today will illustrate that the majority of all non bank lenders still continue to be lower than the major banks, in some cases up to .75% lower. (Source: www.infochoice.com.au)
² e.g over the last 10 years, Resi’s advertised standard variable rate has been, on average, almost 0.75% lower than that of the big four banks. The result has been a saving of more than $54,000 in interest on a $300,000 loan over 30 years.
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