Once upon a time, retailers would advertise their lowest prices to attract punters into the shop. Somewhere along the line, money retailers (ie banks) lost that particular plot and advertise their highest prices while actually selling for much less.

It’s been common knowledge that banks’ advertised lending rates are for mugs who don’t know to ask for the ubiquitous discount. If you happen to be a “professional”, or have a university degree, or attended uni for a while, or know where one is, you could ask for a “professional package” which was once a particular deal reserved for doctors and the like but now is available to most people with a reliable job.

The extent of the available discounting has been hard to quantify though but the cat has been belled by St George Bank’s head of home loans, Steve Blinkhorn. When other banks were nudging up their fixed-term rates ahead of last week’s better-than-expected CPI, St George splashed out with a 6.95% “special” for three or five year fixed rates.

The CPI and St George took some of the heat out of the other banks’ rates, but a sample of the usual Monday interest rate ads in AFR yesterday showed ANZ and Westpac charging a nominal 7.35% for three-year fixed, so it looked like St George was chasing market share hard – was such lending profitable? In a Eureka Report interview, Blinkhorn said it certainly was

“The other thing to bear in mind is that the competitor’s price and what’s advertised is not always what the customer can get,” he said. “There is a lot of discounting going on. And particularly some competitors offering packaging or advantage packages… 15 to 20 basis point discounts are relatively common on those packages.”

What was the average three year fixed loan rate really at present?

“I think around 7% would be the average of what’s being written at the moment so we’re at 6.95… we are seeing evidence that competitors are discounting to match us.”

Only mugs pay full retail.

Peter Fray

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