Auswide Bank has introduced a loan that will track the Reserve Bank of Australia’s cash rate, claiming to be one of the first loans of its kind in Australia.
The interest rate of the new loan, launched with a variable rate of 3.99%p.a. (comparison rate 4.01%p.a.), will shift by the same percentage as the Reserve Bank shifts its rates up or down.
The loan has a ‘floor’ - if the RBA cash rate falls to 0% or below in the future the customer will continue to pay the fixed margin.
Auswide Bank managing director Martin Barrett, said tracker mortgages are a popular loan product internationally particularly in Europe. “The availability of tracker mortgages in Australia has been a topic at the current inquiry into the major banks having been highlighted by the parliamentary standing committee.”
The loan will be available on new owner-occupied home loans of $150,000 or more for purchase or refinance with an LVR of up to 80%.
The new loan comes after The Australian Securities and Investments Commission (ASIC) faced a parliamentary inquiry on Friday, answering questions about compliance in the banking sector and the possibility of lenders offering tracker mortgages.
According to our sister site, Australian Broker, the Standing Committee on Economics raised ASIC chairman Greg Medcraft’s prior comments about the need for banks to offer tracker mortgages.
“The benefit for consumers is transparency, timing and comparability,” he said.
As SVRs are not comparable between banks, “this results in a behaviour that consumers don’t move banks,” Medcraft told the Committee.
On the other hand, tracker mortgages “allow true comparability” and “true competition,” he added.
“It’s very understandable [of the banks]. It’s very nice if you can change costs any time that you want.”
One of the benefits of tracker mortgages is that they allow for more movement into the secondary mortgage market, he said. Furthermore, the idea of tracker mortgages was not a new concept he added since corporate Australia already has them with loans following the bank bill rate.
“I see this as an evolution and not a revolution,” Medcraft said.