Westpac moves on tiers, but not on LEMs

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Westpac is the latest bank to remove its two-tier pricing for home loans, however it refuses to budge on its low equity margin.

Tuesday, April 8th 2014, 10:20AM 1 Comment

The bank says it will offer the same carded rate to all of its customers regardless of their loan-to-valuation ratio.

Also it has decided to allow customers with low equity loans to use its six month and one-year fixed rates, which had previously been off limits to these customers.

Westpac's controversial low equity margin though remains. The bank takes a different approach to its competitors and applies a margin to the interest rate which is effectively a higher rate for the term of the loan. Other banks charge a one of premium for low equity loans.

A number of brokers mortgagerates.co.nz spoke to said Westpac's policy makes its products too expensive for these customers and they use other banks.

"For many Westpac home loan customers a LEM is going to see them paying thousands more compared to what the other banks would charge. The LEM could end up staying on their loan for years," one said.

Westpac refused to talk about its low equity margin, but did issue the following two-paragraph statement:

"Westpac take a different approach to some competitors by applying a risk margin (LEM) on to a customer's home loan interest rate, instead of charging an upfront fee. Upfront fees have the disadvantage of either being difficult for the customer to pay, or if capitalised on the loan (increasing the LVR) then the customer must also pay interest on top of the fee.

"LEM is removed when the customer can evidence their LVR position has dropped below 80% LVR, providing an incentive for the customer to build equity in their property quickly. The LEM varies depending on the customer's LVR band.

"We don't have anything further to add," a spokesman said in an email.

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