What is a “Tracker Mortgage”?

A report from a government committee has suggested that Australian Banks be forced to issue “Tracker Mortgages” (Aust Financial Review 27 March 2024).

Australian banks have unsurprisingly pushed back.

A “tracker mortgage” supposedly “tracks” the Reserve Bank cash rate so that your home loan rate remains at a fixed margin relative to the Reserve Bank cash rate.

The benefit is that a borrower will not be left (as currently happens) with a rate stranded high and dry well adrift of where it should be.

The initial question came from someone who contacted me with an interest rate in the mid 7’s – with a major bank.

The problem is real, but a government solution is not the answer because banks don’t borrow from the Reserve Bank – the price of money to a bank is determined by money markets.

So, what is “fair” and what should the solution be instead…?

What is fair, is that existing customers be charged the same rate (or very close) as that offered to new customers.

Banks could do this voluntarily – but let’s not be naïve – they won’t.

Brokers now write 72% of ALL new loans and brokers COULD change the market overnight – by refusing to write new business to a bank who won’t agree at point of sale to treat customers fairly.

That means telling consumers at point of sale, the current price and future pricing policy… namely that existing customers be given the same rate (or close to) as offered to new customers.

I can’t speak for other brokers – I can only speak for myself and my clients, and as you know this is exactly what I do.

I review every loan, for every client, every 6 months…

I don’t need a government report to act in my clients’ best interests – because we know we can’t expect banks to.

If you have family or friends, stuck on an interest rate above what is currently being offered, feel free to put them in touch. And as always if you’d like advice tailored to your own personal circumstances please call or email me anytime… It’s what I’m here for.

Alan Heath – Ask Alan, Mortgage Broker in Brisbane, Adelaide, Canberra, Melbourne, Sydney and Perth