Banks to face a battle over interest rates

Posted on 2010-06-16

 

SYDNEY'S stressed mortgage holders could be the winners from a push by a non-bank lender to gain market share by sparking an interest rate war.

RAMS Home Loans will today slash its two-year and three-year fixed home loan rates by a whopping 0.31 per cent.

That would take the rate to 6.98 per cent - not only the lowest in the fixed market by far, but a whole 0.25 per cent under most standard variable rates.

With the unprecedented cuts coming only two months before official interest rates are expected to rise again, the lender is effectively declaring war - and customers will reap rewards as rival lenders respond.

RAMS built its reputation as an aggressive low-cost non-bank lender but it is now owned by Westpac, which has the dubious honour of having some of the highest lending rates around; they are effectively the Qantas and Jetstar of the banking world.

This latest move means RAMS is a stalking horse on the other major banks, which have steadily increased their market share since the global financial crisis.

RAMS acting chief executive Tony MacRae said the expectation of further rate rises meant people were considering fixed rates and his company had seen a 50 per cent jump in those inquiries in three months.

"With the pressures of increasing interest rates, people are shopping around and seeking a more affordable home loan choice," he said.

The move to become the market leader on price was part of RAMS' Lazarus-like revival.

Shortly after it listed on the Australian sharemarket in July 2007, investors caned the company after its narrow funding model ran out of funds, courtesy of the GFC credit crunch.

The brand was sold to Westpac and its mortgage holders were left trapped in a separate shelf company called RHG. When lending markets eased, RHG was well placed to reap the rewards from a turnaround in mortgage markets, trading off fatter margins for a greater profit.

Source: The Daily Telegraph

 

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