15 October 2016
Sydney, 14 October 2016: The Australian Bankers’ Association has supported today’s comments by Chairman of the Australian Prudential Regulation Authority, Mr Wayne Byres, about the concerns of mandating rate tracker mortgages for all authorised deposit-taking institutions.
“Mortgages with interest rates tied to movements in the cash rate do not offer the best outcomes for customers, the banking industry or the Australian economy,” ABA Chief Executive Steven Münchenberg said.
“The RBA cash rate is only one of many factors which goes into the cost to banks of providing mortgages.
“Other funding costs, especially those sourced offshore, change independently of the cash rate. This means banks need to factor in the likelihood of these funding costs rising, and build in a higher buffer when setting a tracker mortgage rate. Customers will end up paying more than they otherwise would be with a typical home loan.
“In Australia, a large part of bank funding comes from overseas. Requiring banks to offer a rate tracker mortgage that follows movements in the RBA cash rate, rather than the actual cost of funds, would add considerable risk into the banking system.”
Mr Münchenberg said the idea of legislating to require banks to offer rate tracker mortgages was previously proposed by former Greens Leader Bob Brown in 2010 and did not pass the Parliament.
“While banks are supportive of any product which improves customer outcomes, regulating rate tracker mortgages would only result in higher costs for banks and customers,” he said.
Mr Münchenberg said it was important to note that many tracker mortgages offered overseas are not for the life of the loan, as they typically revert to a standard variable rate after two, three or five years and are offered in order to attract customers.
ENDS
Contact: Stephanie Arena 0477 470 677 or Nic Frankham 0435 963 913
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