the mozo blog

As feared, smaller lenders have begun increasing home loan upfront fees in response to the exit fee ban, which comes into effect tomorrow.

Aussie, ME Bank and the Greater Building Society have all advised of home loan fee increases from 1 July.

Aussie will increase the application fee on its variable rate home loans to $600, up from $250 – $500 depending on the loan type. Aussie’s fixed rate home loan fees are also rising by a total of $185.

ME Bank has introduced a new $150 legal fee and $150 valuation fee on its home loans, increasing its upfront fees by a total of $300, and the Greater Building Society will introduce a $500 application fee on all of its home loans.

The Government’s ban on exit fees was supposed to be a win for Australian homeowners and borrowers, making it easier to switch home loans and stimulate competition. But news that the smaller lenders have announced price increases, while the big banks have not, confirms fears that competition in the home loan market may be lessened not increased as a result of the exit fee ban.

Mozo’s top tip for new home loan borrowers

Use the comparison rate to check the true cost of a loan. Even if you are confronted by a large upfront fee, the interest rate is still the main factor in determining the overall cost of a loan.

Got a question on home loan fees? Ask the money mavens on Mozo Answers.

If you haven’t heard, apparently banking’s ‘Big 4’ is now the ‘Big 3’. Through a carefully planned and executed integrated campaign rooted in social media, NAB have decided to ‘break-up’ with ‘former’ cohorts Commonwealth, Westpac and ANZ.

On face value, it seems like a smart decision from NAB. Attempting to shed the image shared by the ‘Big Four’ could only help it’s stuttering financial performance and doing so by shedding fees and lowering rates is also a great step. However, could this move backfire in the long term?

By breaking up with their illustrious rivals, NAB’s losing its one key positive attributes – being better than the rest of the Big Four. Amongst their former brethren, over the past 18 months NAB had managed to position itself as the cheaper alternative with lower rates and less fees. Now having ‘broken up’, it opens them up to greater comparison with challenger brands, the likes of ING Direct, Aussie and RaboDirect, who have been doing this for a long time anyway. And this comparison isn’t pretty reading, particularly when looking along at the home loan battleground where the bulk of this banking war is being fought.

For example, NAB may have the lowest rate standard variable home loan out of the Big Four, but compare it to the rest of the market and they rank a lowly 36th out of the 58 different providers’ standard variable loans we have on our site. If you go on to take upfront and ongoing fees into account by sorting by comparison rate, they sink even further, plunging to 43rd on our list – though still above Commonwealth, Westpac and ANZ I might add.

Which leads to the wider problem with NAB’s strategy. I applaud its moves to cut fees and interest costs and I enjoy the fact that it’s trying to reignite competition in the consumer banking marketplace. The problem is, if everyone starts surveying their options and voting with their feet, will NAB be the winner? Who says an irate Commonwealth Bank customer is going to land up on NAB’s door when they can go a bit further down the road and get an even cheaper home loan? Moreover, what’s to stop NAB’s customers doing the same? Mutuals and Non-bank lenders on average still have far lower rates and fees.

If everyone starts looking for the best deal, NAB’s got a battle it can’t win. Not yet anyway. Breaking up may be hard to do, but only time will tell if it was the right thing to do.

Compare home loans at Mozo.

I had to pinch myself yesterday as I absorbed the headline “John Symond defends banks’ decision to pocket rate cut”  (check it out, and the reactions, at Lending Central)

What the….? Is this THE John Symond. The world really has changed.

When John Symond starts defending the banks you know something is wrong. The problem is, there are no challenger brands left, at least not on the lending side. In recent years the most successful challenger brands in lending have been Aussie, Wizard and BankWest. They have connected with consumers in a way the old players just cannot do, and have brought really strong products to market. And surprise, surprise, all were successful in attracting large volumes of customers away from the big banks.

So how does Commonwealth Bank respond, by competing with them on product and marketing? No, they take them out of the market instead. They bought BankWest, bought a stake in Aussie, and Aussie bought Wizard and swiftly killed the brand entirely. So we wake up today with a very different world where competition in banking is just not what it was. And that’s bad news for consumers.

So essentially Commonwealth Bank is now left to develop products and marketing as they see fit. Here’s an example I just saw on a banner ad this morning - ”No annual fees forever on the Low Fee MasterCard. That wasn’t so hard, was it?”

No, it wasn’t hard at all. Which is why I want to know why it took so long to do it? The no annual fee ever promise has been in the market for 6 years.

But worse than that, let’s look behind the headline message and see what the offer really is. Clicking it takes you to a page which then says:

“No annual fee for Commonwealth Bank customers who take up a new Low Fee credit card and spend $1000 per year. Annual fee $24 for non-Commonwealth Bank customers”

So in fact it isn’t even a no annual fee forever card at all!! And why market something on a widely shown banner ad that is actually only available for your own customers?? And never mind the fact that the interest rate is 18.49%.

When product development and marketing is left in the hands of the big banks it’s not happy times for consumers unfortunately. Let’s hope some new challenger brands are on the horizon, because Australians need them.