Home Owners Flee Banks
Sun Herald
Saturday May 25, 1996
A STAMPEDE of borrowers wanting to switch from the banks' 10.5 per cent home rates to cheaper alternatives has prompted the State Government to hasten the abolition of stamp duty for refinancing.
The move will also be a boon to small and medium businesses which will have more clout in dealing with the banks because the cost of refinancing will no longer be prohibitive.
But it comes as ANZ chief executive Don Mercer warned that interest rates are likely to rise "a little" later this year.
On a $100,000 mortgage the saving in stamp duty is $341, almost half the cost of refinancing.
The relief from stamp duty was due to begin on July 1 but has been brought forward to June 1 because there had been a flood of inquiries to the banks.
"There has been an enormous response," Treasurer Michael Egan said yesterday, adding that small businesses were also a major beneficiary of the move.
He warned the banks would "lose customers in droves unless they pull down their high variable rates".
Although legislation to abolish the duty won't be ready in time for the earlier date, Mr Egan said it would be made retrospective.
He also said a loophole in which those who refinance and want a bigger mortgage would have had to pay stamp duty on the whole loan rather than on the extra part of it "will be fixed".
But there is no good news for new home borrowers. Mr Egan said the State could not afford to cut stamp duty for first home buyers.
John Stewart, of the NSW Branch of the Institute of Chartered Accountants, said a client refinancing a $1.2 million facility was able to save $5,000 in stamp duty and $3,300 in annual interest by shopping around. "I don't think the banks have realised the implications yet," he said.
For customers the banks wanted to attract previously, they would offer to pay the stamp duty to refinance but now "they will have to stand on the interest rate they offer".
It will be easier to move between banks for small businesses and "the banks will have to respond".
The two largest non-bank lenders, Aussie Home Loans and RAMS Home Loans, said the number of inquiries from bank customers about refinancing had doubled last week.
While the extent of interest in refinancing appears to have taken the Government by surprise, the non-bank lenders said the floodgates had been opened.
Aussie managing director John Symond said the cost of refinancing a standard variable bank loan was now $845.
This would mean borrowers would recoup the cost of switching from a 10.5pc loan in six months, or about five months on the average mortgage of $130,000.
Mr Symond claimed an 8.9pc Aussie mortgage "has all the features, and in some cases more, as the banks' standard variable rate loans". The only other fees for refinancing are a settlement fee (about $130) and a Government registration fee ($52) and the charges of a solicitor if you use one. Most lenders now include valuation fees and their own legal costs in their application fee, usually $500.
ANZ, however, has waived its application fees.
The only penalty the banks charge on extinguishing 10.5pc variable mortgages is the settlement fee, about $130.
On large, fixed-rate loans, even with paying a month's interest penalty, re-financing still pays for itself within months.
RAMS spokesman Greg Jones said the stamp duty "came as a rude shock to people refinancing and definitely put many off".
Even so, the abolition ofrefinancing stamp duty is not a complete blow to the banks which have been competing savagely on fixed rate and one-month honeymoon loans.
Mr Mercer said ANZ's fixed interest rate mortgages "are holding market share quite well", although it would soon introduce a "very competitive" no frills loan.
He warned that while there was a chance of a small drop in interest rates in the next couple of months, rates were more likely to be "steady and then we expect a small rise later this year" as the economy picks up.
Mr Mercer said there was still an imbalance between the fees the banks receive and the services they provide.
There should be a "more even" profit split between fee and lending income. The ANZ Bank's results for the half year ended March, released last week, showed a revenue of $1.7 billion from lending compared with $691 million from fees. After expenses, the bank's profit was $520 million.
Implicit in Mr Mercer's comment is that lending profits should fall and fee income should rise - that is, more fees but relatively lower lending rates.
TOP 5 VARIABLE MORTGAGES
% rate True rate
Super Members Loans 8.70 8.80
FAI First Mortgage 8.80 8.93
BMC 8.85 8.97
Aussie Home Loans 8.90 9.02
St George Bank 8.90 9.05
Note: The true rate takes fees into account. Source: CANNEX
© 1996 Sun Herald
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