As the refinance market hots up, lenders are understandably trying to get an edge. In recent months, that has seen the rise of cashback home loan deals, in which customers can get an up-front fee for choosing a lender.
Brokers have long complained about such deals: many see them as slowing down the processes at lenders while offering short term deals to customer that make it harder for brokers to perform their Best Interest Duty requirements.
Sarah Eifermann, a long-time broker and finance coach at SFE Loans, told Australian Broker of the problems that many within the broker channel saw in cashback deals.
“Cashbacks are seen to clog the service levels of lenders,” she said. “They drive business to a particular lender for one metric alone, that being the cashback. They can be seen to be in conflict with BID.”
“There are also concerns about clawbacks: if a customer comes to you, you might have refinanced them or settled their loan only 12 months ago, and now they’re chasing cashback.”
“You receive a clawback to rewrite the deal, the customer gets paid but the broker doesn’t get compensated for their time.”
“If you’ve been in the industry long enough, all banks go through a cycle of when they’re amazing and everybody loves them and when they’re not amazing and, for whatever reason, they’re not popular.”
“The banks that run cashback promotions do it with enough market share that it seems to be a conflict of interest of why they’re doing it in the first place.”
“It’s extra work, for not necessarily client benefit. What’s no measurable is the additional stress that is placed on the broker and the client when you’re chasing the sole metric of a cashback.
“If you go with a lender that has a cashback, but it takes you six months to get the loan approved, it’s so much extra work and stress for the purposes of saving, say, $5k up front. What is that worth over the length of the loan?”
Julian Fadini, broker and founder of Prpty360, was more receptive to cashback home loan deals, but saw that they did pose an issue with BID.
“My view is that any win for the client is good,” he said. “If there’s money on the table and savings to be made, we always want our clients to be in front seat to obtain those.”
“However, if you’re advising your clients thoroughly and correctly, that shouldn’t be the only thing that you’re advising your client as to whether or not a loan is suitable.”
“We need to look at the timeframe for them, because they might be under pressure there, and the turnaround times for the lender need to be also in the forefront of the broker’s mind.”
“Overall, the client’s best interests should be the only thing that should be in consideration.”
Brokers are often not big fans of cashback home loans
In an increasingly competitive refinancing environment, many lenders were turning to cashback mortgage offers to gain an edge.
Western Australian customer-owned bank P&N Bank are one such lender, and this week announced an eye-catching $3,000 bonus to customers who chose to refinance with them.
Kaine Adamson, P&N Bank’s Acting General Manager, told Australian Broker that while the cashback made a good headline, it was vital that brokers and customers looked beyond it.
“It’s really important that customers aren’t just looking at the cashback that they might receive, and that they also look at the interest rate that they’ll be paying and the associated fees and charges,” he said.
“I know some lenders in some markets charge a monthly or annual package fees which can erode that benefit pretty quickly. It’s a great role that brokers pay in educating customers to be able to see through the complexity.”
“With P&N Bank, our cheapest fixed rate is 1.99% and we don’t charge any monthly or annual package fees, so we think that’s a win-win for customers and also brokers.”
Refinancing had made the market competitive, and provided opportunities for customers, brokers and lenders.
“If you look at refinance across the market, it’s probably at a 12-month high as people look to make the most of competitive interest rates,” said Adamson.
“The broker channel is nearly 60% of the market and, from what we’re seeing, a greater proportion of those customers are choosing to go through a broker because they’re driving competition in the market.”
“There are associated costs with refinancing. Whether its mortgage registration and discharge fees, people who want to break a fixed rate early, what the cashback does is remove that barrier for a consumer.”
“It makes it easier to refinance and whether they choose to come direct or to go to a broker. For us, there’s none of those hidden fees and they can come to a great rate.”
According to Adamson, cashback home loan deals were just one tool that lenders had to draw in business, and it empowered the customer through choice.
“It removes that cost to refinance barrier,” he said. “The $3000 goes to covering those costs, or it can go to the first repayment, or to cover household expenses, or just to buy a new TV. It’s up to them how they choose to use it.”
“We’ve also made this one applicable for those looking to buy a home as well as refinancing, so while it can remove that barrier, we’re hoping it can also help the cover the costs of removalists, stamp duty and those kinds of things.”
“A broker will always look after the customer’s best interests, and that’s the beauty of the channel. They make sure that they deconstruct a lender’s offer to make sure that the cashback stacks up over the long term, and that’s what we hope the broker is doing.”
“That’s why we have the cashback but with our best rate and with the no annual package fee and all those things, from P&N’s perspective, put us at the head of the mix. We don’t want to hide behind fees and charges that make the customer pay more in the long run, because nobody wins there.”
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