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ANZ CEO doubts demand for tracker loans

AAP logoAAP 5/10/2016

ANZ chief executive Shayne Elliott says he wouldn't object to the government ordering Australian banks to offer so-called tracker mortgages, but doubts there's demand for them.

Tracker mortgages are guaranteed to move in line with a country's central bank interest rate, and became popular in the UK and Ireland in the mid 2000s due to the clarity of their pricing and chances that cash rates would fall.

Mr Elliott has told the House of Representatives' Standing Committee on Economics tha ANZ's funding is not linked to the Reserve Bank's cash rate, so it would have to charge a premium to mitigate the risk of offering a product is linked.

That could make such a product too expensive to be attractive, even to customers unhappy with the big four's failure to pass on Reserve Bank interest rate cuts in full to mortgage customers hitched to standard variable rates (SVR).

"It comes down to 'do we think consumers are attracted to it in sufficient volume to make it worthwhile?'" Mr Elliott said on Wednesday.

"Our view would be that generally people are attracted to the headline rate and that, on a like for like basis, the tracker rate is going to be more expensive because of that risk."

With interest rates at historic lows in the wake of the global financial crisis, banks have raised margins on products such as tracker mortgages, and often placed a floor on how low rates can fall.

"When the European Central Bank rate dropped to zero, banks stopped making a profit on tracker products ... (and) in Ireland, some banks have been keeping adjustable-rate mortgage rates higher in order to make up for the losses on tracker mortgages," said Bessie Hassan from comparison website

"This is why, even though tracker mortgages offer definite benefits for the customer, we're unlikely to see them in Australia in the near future."

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