Trending Financial News 30 August
Borrowers are not finding the cheapest home loans
“We believe that some consumers are likely taking out loans when cheaper alternatives exist,” said the latest Australian Securities and Investments Commission review of the Australian mortgage market.
Consumers are disadvantaged because of a lack of price transparency in home loans according to ASIC’s “Looking for a mortgage: consumer experiences and expectations in getting a home loan” report, released yesterday.
ASIC followed 300 consumers through the process of taking out a home loan and surveyed 2000 home loan borrowers.
60 per cent of consumers took out a home loan with a bank or lender with which they had an existing relationship.
No loyalty in the mortgage market
ASIC’s “Looking for a mortgage: consumer experiences and expectations in getting a home loan” report, released yesterday, found that consumers are often disappointed when their lender did not offer them reward for loyalty.
When consumers want a lower interest rate, they had to ask for it and this was not always successful.
Ten per cent of consumers who have recently taken out a home loan said they were struggling to make repayments or had missed a payment.
Borrowers confused about mortgage brokers
Home loan borrowers who go to mortgage brokers tend to be first home buyers and people with less knowledge about the home loan market according to the latest review of the mortgage market by ASIC.
58 per cent of consumers receive just one or two loan options from their broker with 21 per cent believing they could have got a better interest rate elsewhere or were not sure whether they got a good rate.
Many consumers think brokers get them a better deal than going to the lender directly according to previous consumer research by ASIC but there is no evidence to back this belief.
“The data we obtained did not show a consistent trend that brokers obtained either cheaper loans or more expensive loans,” ASIC found.
Can I get a lower rate by using a mortgage broker?
Borrowers often believe they can get a lower home loan rate by using a mortgage broker according to two recent large surveys by the Australian Securities and Investments Commission and the Productivity Commission.
“While many consumers believe that mortgage brokers can secure them a lower interest rate, interest rates on home loans obtained through brokers are not significantly different to those obtained directly from lenders,” said the Productivity Commission.
The Productivity Commission said large financial institutions have confused home loan customers with persistently opaque pricing, conflicted advice and remuneration arrangements for brokers selling their loans.
“Trail commission [payments from lenders] have the effect of aligning the broker’s interests with those of the lender, rather than those of the borrower.”
Mortgage brokers now ‘part of banking establishment’
Banks have taken over the mortgage broker segment and compromised its’ competitive benefits according to a Productivity Commission review of retail financial services.
“The competition benefits of mortgage brokers have become compromised,” said the Productivity Commission.
“Mortgage brokers, who once revitalised price competition and revolutionised product delivery, have become part of the banking establishment.
“Major banks have not only survived the emergence of the broker model, they have leveraged their market positions to make it their own.
Prospa launches new products and grows customer numbers
Small business lender Prospa reported yesterday that in 2018/19 loan sales rose 37 per cent to $502 million were up 37 per cent on the previous year, slightly ahead of forecast. Prospa’s customer numbers grew by 58 per cent to over 20,000.
Prospa also reported that 11.2 per cent of its lending has been written off as bad debt.
In the last year Prospa launched a line of credit product to complement its fixed term business loan offering. Prospa also launched ProspaPay, a B2B trade payments product that allows for payments on an interest-free basis.
Prospa’s annual report also disclosed that the average interest rate paid on its loans is 24 per cent.
Would you Tap & Pay to give to the homeless?
London is installing contactless donation points so anyone with a contactless credit or debit card can tap to donate three pounds to a charity helping the city’s homeless population.
The contactless donation points will operate for a trial period of three months at four locations. If successful, more donation points will be added.
“People are increasingly using their debit and credit cards and carrying very little cash,” said Marianne Fredericks from the City of London.
“This is an effective and efficient way to help the most vulnerable in our society.”