Westpac has pulled back from the Australian mortgage market, shutting down part of its Rams Home Loan business and raising the level of equity new mortgagees will need to get a home loan.
But mortgage brokers claim the moves will leave more people out of the housing market and reduce competition.
The changes, which were announced yesterday, will see the required loan-to-valuation ratio for Westpac customers increased to 87% from 92%.
For new customers of the Westpac-owned Rams Home Loans business, tightening its loan-to-valuation ratios from 90% to 85%, while for low-doc loans, the ratio must be no more than 80%.
But even more controversial is Westpac’s decision to stop offering Rams loans through independent mortgage brokers. Rams loans will only be available from Rams franchisees.
Kristy Sheppard, corporate affairs manager at brokerage franchise Mortgage Choice, says the decision to withdraw from the broker market could hurt Rams and Westpac.
“At the end of the day, Rams is just making themselves less valuable to potential customers. A ton of lenders are out there, such as building societies, credit unions and foreign lenders, and it’s a major signal that people need to shop around.”
“There are a wide range of lenders out there for people to choose from, and there are a heap more where borrowers can look for mortgages.”
Sheppard said the decision will make a number of borrowers disappointed, and may see brokers lose some of their business.
“Several borrowers working through their mortgage brokers may have to change lenders, because they are loyal to their broker and familiar with the high quality of customer service, or will have to deal with Rams direct.”
“We were really disappointed when we learned about the changes, but not necessarily surprised. They have been backing out of the mortgage market for the last year or so, but obviously they are under funding pressure and they’ve definitely experienced high activity lately… which they needed to draw in.”
While Sheppard denies the decisions will have much of an impact on Mortgage Choice, saying Rams loans only account for about 0.9% of the value of its lending, she says the move is an interesting one.
“Given about 40% of new home loans are sourced through mortgage brokers, it’s definitely an interesting move. This also comes after Westpac raised rates in December by much more than the RBA rate.”
“What this does, effectively, is reduces competitiveness and this is at a time when we need to increase customer choice. More competition means more quality products, more features on offer, better pricing, and it keeps lenders on their toes.”
The move comes after Rams ceased to operate with a number of mortgage aggregation services last year, along with new pricing policies.
“We’ve been exploring our options over the last few weeks and months and unfortunately we came to the inevitable conclusion that it just wasn’t viable to stay in both channels in the current market,” the lender said in a statement.
“We currently have many different policies across the two channels which makes the business increasingly difficult to manage and market.”
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
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