After reading about renegotiating home loans in a news article, I decided to see about getting a lower rate from our bank.
When I contacted my bank, it agreed to lower my rate a little (although the advertised rate for new customers is lower still). However, it would not acknowledge my questions regarding having my home revalued.
It would not tell me if it would accept a privately acquired valuation, or if it could arrange a valuation, even if we paid for it. It was only during my initial telephone conversation that the bank acknowledged anything about a valuation: I was told that our loan-to-value ratio (LVR) was based on a May 2021 valuation the bank conducted within the property settlement period.
If we had the property revalued, it would most certainly lower the LVR.
It is impossible to say whether or not an improved LVR would prompt a better rate offer without cooperation or transparency from our bank. Given the movement in property values, is the bank obliged in any way to acknowledge my request?
Or is my only right to be able to seek a better (introductory, temporary) rate elsewhere from a different bank? We are currently on a variable loan, and don’t have a fixed term contract.
Bianca, Queensland
Kat George says: When you refinance your mortgage, it essentially ends the first mortgage and begins a new one. So, when you refinance, you are taking out a whole new loan. Because of this, banks generally conduct a valuation of your property to determine the level of risk in the loan.
This cuts both ways. If your property value is high, or deemed to have increased since you took ownership, you’ll pose less of a risk and therefore be subject to better deals. If your property value is low or deemed to have fallen since you took ownership, it poses a bigger risk to the bank. This is because the bank will have less collateral to recover if you default on your loan – which is something you’d think it would want to know!
Indeed, if your LVR is more than 80%, you might be liable to pay lenders mortgage insurance on your new loan, which is also something the bank needs to establish.
There is certainly an information asymmetry here. Your bank seems to be withholding some vital information from you by not explaining clearly why it isn’t valuing your property more highly, or considering your request for a revaluation. At best, this is extremely frustrating and not best-practice customer communication. At worst, it could be a breach of the Banking Code of Practice.
While the code doesn’t say anything specific about property valuations for individual loans, it does require ‘responsible lending’. This means that if a bank is considering you for a new loan (or an increase in a loan limit), it must ‘exercise the care and skill of a diligent and prudent banker’.
Knowing how much equity you have in your home is something a diligent and prudent banker would want to know before it lends to you.
As for next steps, you could call your bank and remind it of the responsible lending requirement in the Banking Code of Practice. The Banking Code of Practice is a set of enforceable rules that, according to Australia’s regulator of banks and financial services, ASIC, ‘are intended to raise industry standards, complement legislative requirements (and in some cases go beyond the legislative requirements) and encourage consumer confidence’.
If you feel your bank has not complied with with the Banking Code of Conduct and responsible lending rules, you can raise a complaint with the Australian Financial Complaints Authority. Again, while the code doesn’t specifically entitle you to a property valuation when taking out a new loan, it does seem to be within the spirit of the code, given this is something a prudent banker would undertake when assessing a loan application.
My advice is to call a mortgage broker and ask them to research which other loan options are available. You could do the research yourself but with so many deals on the market, this could be a complicated and lengthy process. You don’t have to pay a mortgage broker to do the work for you – they get paid by the bank you ultimately choose to take out a loan with. A good mortgage broker will present you with a number of options; you will have the final say on the lender. The broker will then manage all communication and documentation with the lender for you, which can also be very convenient.
Next, check the terms of your current variable arrangement – there may be a discharge fee. But this could be small compared with what you might save in interest if you do find a better loan package elsewhere.
Ultimately, if your bank is being this difficult to deal with, you should consider whether locking yourself into another loan term with it will be worth the time and heartache. Even if it offers to match a better rate from a competitor, it has already shown you what to expect: poor communication and a lack of customer support.
This letter has been edited to incorporate additional information provided by the reader.
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