Headline rates: Who is the lamb and who is the knife?

Some believe the real victims of the bridging industry’s notorious ‘Rate War’ are the borrowers. Wooed by a lender’s seductive sub 0.7 per cent rate, only to be left heartbroken by excessive penalty and extension fees.

But is that really the case?  

Are borrowers and, more importantly, their brokers, so short-sighted to not read the fine print of a deal before signing on the dotted line?

I’m not so sure. However, I am relatively sure that some industry brokers would feel insulted by this lack of faith in both their knowledge and integrity. As this view completely overlooks the role of the intermediary.

Yes, a big SALE sticker may look attractive on the surface but it’s hard to believe that those rates are so attractive that borrowers and brokers would ignore other offers, rush into the deal and neglect to consider the possible pit-falls.  

At this year’s AOBP Forum, the association’s intermediaries and other professionals were asked: “Do headline rates mismanage a client’s expectations?” A majority of 66 per cent said yes, which could allow us to assume that brokers – or a decent cross-section, at least – are not in fact blinded by a rock bottom headline rate.

Advertising low rates is a marketing tactic, which any business would apply to entice a consumer. With all transactions, there is fine print that needs to be read. A simple part of due diligence that any comprehensive adult is aware of before entering into a contract.

Furthermore, with the bridging industry being dominated by intermediary-led business and not direct to consumer, one could say the audience is on average more impervious to being misled via marketing due to their industry experience.

It is both reductive and over-simplistic to allege that any lender with a low headline interest rate is out to dupe its customers into insufficient term durations and then feast on heady default rates.

However, a broker must remain alert to any potential threat to their client. So in some respects the broker is on the front lines of being influenced by any questionable tactics. 

As the borrower’s employee, the broker surely has a responsibility to coax out the right information and press the right buttons to reveal the actual landscape the borrower is dealing with.

That all important expertise of the intermediary exists in the chain so it can pick apart the deal and be there if needed, to defend a potentially clueless borrower.

In summary, savvy, sensational marketing does not make a ‘duped’ borrower. In this b2b world, intermediary involvement – for better or worse - is key and cannot be overlooked.