08 Mar Do Australian lenders need to develop more innovative products?
On today’s show, Andrew Mirams answers my question about Australian lenders needing to develop more innovative products.
Read the transcript here:
Kevin: A couple of weeks ago, in the show, I was talking to Andrew Mirams about investment lending. It made both of us think, I guess, whether or not Australian lenders need to develop more innovative products. He joins me to continue that conversation now, officially, online so everyone can hear it.
Andrew, what are you thoughts? Do you think that we should be developing more innovative products?
Andrew: Good day, Kevin. How are you?
Look, the reality is probably, but the other reality is our products are probably as advanced as our mortgage products or as advanced as what everyone has around the world. In Australia, we’re one of the leaders in offset accounts, if not the first to bring them in. You can get redraws. There are all sorts of blends of products that our banks and lenders can actually do now.
I think we do actually have a pretty good product suite across all the lenders that we have. You can have lenders that have fixed rates with offset accounts. You can have one loan and then multiple offset accounts with it, so if you want accounts for the kids, it can still be working to help you pay down your loans. I actually think we’re pretty well off.
Kevin: I think in the States, they have a couple of things like being able to re-fix or break or renegotiate a fixed-rate loan. You wonder whether they’re good.
Andrew: Yes. Wouldn’t it be great at the moment if someone who had fixed in for five years, three years ago at 7%, and you could just stroll into your bank and say, “Look, now I know that rates are 4.5%. I want to renegotiate,” and there’s no fee. Sadly, in Australia, you have to pay quite an exorbitant cost because it actually costs the banks to lock that money in.
I guess that’s the reality why our banks are so big and strong and profitable versus the issues that they had in the U.S. In the U.S., they can just go in and renegotiate their fixed rate loans. If it goes from 5% down to 4%, they can walk in and just get the new rate and away they go.
Kevin: I think you make a very good point there, comparing the two banks – Australia and America. I think you would always have to opt in favor of a very healthy banking system based on what we’ve seen happen in America compared to what’s happened in Australia.
Andrew: Absolutely. Would you rather be paying just a little bit more in Australia but all of the banks are open for business and able to lend money, or do you want the cheapest rate but that’s so hard to get it’s just not worth having them? Our big four banks are rated in the top 10, I think, in the world so that’s an amazing achievement for our banks.
Kevin: I think it’s very easy for the critics to come out, too, and criticize the banks when they do announce their profits and they are quite high. But then, I always say, “Well, thank goodness. We have a healthy banking system; it’s not going to collapse overnight.”
Andrew: Absolutely. Bank bashing is a pastime, isn’t it?
Kevin: It is, indeed.
Andrew: I think, yes, for fees and interest rates and things like that. But the reality is you have to treat them like a commodity. They’ve got something that we all want, and unless you’re a very fortunate few, we need to go into a bank, we need to borrow from a lender that is going to give us the terms that we can then go and buy a house or an investment property or numerous investment properties, upgrade that house, whatever it is.
Like I said, unless you are very fortunate and you don’t need them, half your luck, buy lots of shares in them, and they’ll pay you back quite handsomely. Otherwise, we need them. You need to be able to treat them as a commodity, because they need you because they need you to make money but you also need them to get the money.
Kevin: Yes. I generally find when people are critical of the banks like that or of filthy capitalists or investors who are making money on the back of investment properties, I always ask them whether they have an investment property themselves, and nearly always the answer is no.
I was going to canvas some comments on the topic we’re talking about today and say, if you have a comment on this, let us know,” but I think I know what those comments are going to be because largely, listeners to our show are investors and investors in property.
Andrew: Yes, absolutely. Look, I think it would be great to open up to the listeners, Kevin, and say, “What do you think would be a great innovation for our banks to come up with?”
Kevin: Good idea.
Andrew: I work in it everyday and probably, I think generally as a rule, what we have is a pretty good mix but I think the listeners might have some great ideas about what the banks could, should, or would do in terms of innovation. I think that would be a great idea.
Kevin: Okay, let’s open it up. Let us know what you think. You can always contact us through the website; there is a comment section available there. Let us know what you think and tell us the sorts of packages you’d like to see. I don’t know how far we’ll get with it, Andrew, but it would be well worth having a look at.
Andrew: Absolutely. Yes, I think it’s a great idea, Kevin.
Kevin: Andrew Mirams from Intuitive Finance. Let us know through the website. What do you think? Should Australian lenders develop more innovative products, and if so, what should they be?
Andrew, once again, thanks for your time.
Andrew: My pleasure, Kevin. Have a good day.