Auswide Bank (formerly Wide Bay Australia) has released a new ‘rate tracker’ style home loan, believed to be the first of its kind in the Australian market.
It is Australia’s 10th bank with a loan book of approximately $2.8 billion. Its most recent results (FY16) shows a statuary profit of $11.7m, down 11.8% on last year, and a net interest margin of 196 basis points, down 2 basis points on the prior year. Loan arrears rose from 0.96% to 0.99% in the last year. So like the other regionals, under pressure.
Given the fact that they will be funding their book mainly from deposits, the move may signal the start of a new front in the mortgage war. However, managing basis risk will be the big issue.
The RBA Rate Tracker home loan will track the movements of the Reserve Bank of Australia (RBA) cash rate. If the RBA shifts interest rates up or down, the interest rate attached to the home loan also moves by the same percentage.
The RBA Rate Tracker home loan has been launched with an attractive variable interest rate of 3.99%p.a. (Comparison Rate 4.01%p.a.) and provides both the customer and the bank with the certainty of a fixed margin over the RBA cash rate. The loan provides further certainty to borrowers as Auswide Bank will change the rate effective within two working days after an RBA cash rate change. 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.
The new loan is available on new owner-occupied home loans of $150,000 or more for purchase or refinance with an LVR of up to 80% and includes the ability to make additional payments and redraw.
There is a low upfront establishment fee of $300 and no ongoing monthly service fee; however a transaction account needs to be held by the customer with the bank.
Martin Barrett, Auswide Bank Managing Director 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”.
Auswide Bank has an Australian Credit Licence and an Australian Financial Services Licence issued by ASIC and is an Authorised Deposit-taking Institution prudentially supervised by the Australian Prudential Regulation Authority. In 2013, the decision was made by Wide Bay Australia’s board of directors to convert to a bank. On April 1st 2015 Auswide Bank was launched.
