1 February 2012
The last few years has seen intense competition in the home loan market. As home loan activity slowed, many lenders were forced to offer very aggressive deals just to keep customers coming through the doors.
We saw this kind of aggressive pricing coming mainly from the big banks.
If you think about their operating model, it is easy to understand why they had no choice. The banks are very traditional businesses. They have huge operating overheads – including massive retails rents, broker commissions, excessive executive salaries, football stadium naming rights, mobile lenders, wide reaching media campaigns, etc. In addition to all this overhead, they also run very traditional, paper based, inefficient business process. This means that there is a lot of manpower employed to keep things running. When the environment for growth slows, these inefficient, slow, ineffective business processes must still have volume passing through them or they start to fall apart and cannot simply be ramped up again when the need arises.
If they let back-office staff go due to an economic slowdown, then when things turn around, they have to rebuild a lot of that process. To rebuild takes a lot of time and big banks cannot afford to fall behind in terms of processing capacity. So, faced with the prospect of earning lower margins for a ytear or two, or rebuilding some business processes, they typically choose to earn lower margins.
As such, we saw them offering bigger discounts to their advertised rates than we have seen in recent times. The logic being that they need the same amount of volume coming through but from a smaller pool of opportunities… which means they needed to win more market share in order to meet volume requirements. With lenders such as MyRate always offering competitive rates, the only way they could achieve this was to discount their pricing to very aggressive levels.
In many instances, they offered intro rate periods or honeymoon periods that were very enticing, but that are now reverting back to their more regular pricing levels. Which brings us to this post – what to do if you find yourself on the expiring end of one of these deals?
The answer, according to us, is pretty much the same message that we always push – shop around. Review other offers. Every time you check your home loan to ensure it is competitive you are doing yourself a favour. The end of special pricing periods is simply another opportunity to do a home loan health check.
One of our sales consultants can help you and conduct a MyRate review of your current situation to see if we can help you save. You should also search the internet to see what other offers are out there. Might be that the price difference is not huge, in which case you may choose to stay where you are. But if there is a big difference in rates and fees, you could do a lot worse than spending an hour or two looking for a better deal.
