Broker clients reeling as lender slashes discount rate

Over the past two weeks, the lender has been informing some new-to-bank customers that the interest rate on their variable rate loans has increased as a result of the Reserve Bank of Australia (RBA) increasing the cash rate this month, but also as a result of a change in the borrower’s discount rate.

This is believed to impact customers who had interest rates that were “below market home loan rates”.

In correspondence to impacted customers, seen by The Adviser, the bank explained the changes to affected borrowers as follows: “To make sure we offer a highly competitive rate to our customers, while also balancing our responsibility to manage increased costs, current market conditions and a competitive landscape, we’ve made the decision to increase the interest rate on your loan.”

One borrower, for example, was told that their new variable interest rate reflected “a change in the reference rates for AMP Bank’s home loans by 0.25 per cent p.a. and a change in [their] margin from -2.94 per cent p.a. to -2.74 per cent p.a.”.

The change was applied from 13 November (with new repayment amounts effective from January 2024) and was reportedly made to bring them in line with market rates.

An AMP spokesperson told The Adviser: "A small proportion of customers on below-market interest rates have received a discount adjustment, an average of 0.15 per cent, and continue to remain on one of the most competitive rates in the market.

"We recognise it is a challenging environment for mortgage holders and any decision around interest rates is not taken lightly.

"We continually review our rates within the context of the market environment, including funding costs and to ensure our rates are competitive for all of our customers.

"We are working closely with brokers to help them support customers, in addition to our dedicated help that’s available for our customers."

New customers impacted

Brokers have been scrambling to help borrowers understand their new repayments – with several telling The Adviser that they only heard about this issue after their clients had forwarded them their correspondence from the bank.

Zac Peteh, founder of Mint Equity, flagged that around a third of his AMP clients had been affected by the change, with some seeing their interest rate increase by at least 45 basis points after having the 25-basis-point RBA rate increase passed on and their discount rate drop by at least 0.2 per cent.

As such, clients are now paying interest rates of between 6.09 per cent and 6.34 per cent, depending on the property security and product.

Speaking to The Adviser about the issue, Mr Peteh flagged that many of the borrowers who had been impacted had been in their loan for less than a year, with the median duration being five months.

Borrowers with both large and small loan values had been impacted, he said.

Mr Peteh criticised AMP Bank’s move to alter the approved discount on standard variable interest rates just months after winning the borrower’s business, stating that it wasn’t just creating more uncertainty for borrowers in an increasingly difficult economic environment but also fostering distrust with the lender.

While lenders often state in their contracts that they can change individual discounts, the practice is very rare.

“In my long and diverse career, I’ve never seen anything like this,” he commented.

“To reduce a discount rate that clients have already been approved for is not just unprecedented, it’s a covert and unethical move … When a bank offers a discount on their interest rate, there’s an implicit commitment to uphold it, especially when that discount was a deciding factor for the borrower to choose that bank,” he said.

According to Mr Peteh, clients who have been impacted are “livid” and have requested to be refinanced away from the lender as a result.

Similarly, James Watson from Bondi-based brokerage FundingPro, told The Adviser that his AMP clients who had been impacted had only been introduced to the lender within the last six months. The discount change for his clients ranged from 13 basis points to 19 basis points.

He highlighted that the customers were “very upset” by the change – particularly as they would have been better off had they chosen to take a loan out with another lender (one that has not changed their discount rates).

Mr Watson explained that while AMP’s change means borrowers are now “in line with market”, had these borrowers chosen the “second-best lender offer at the time”, they would now be “better off” as these lenders had not tweaked discounts.

“If I look back at the comparisons that I gave my impacted clients at the time of recommendation, nearly all of them would have been better off not going with AMP,” he told The Adviser.

Mr Watson added that some of his impacted clients have chosen to refinance away from AMP, despite it being “a sideways move” (not saving them any money), due to “a lack of trust”.

He added that this meant he was having to rewrite loans and would be clawed back as a result of the bank’s decision to change their discount rates.

“It’s really hard to promote AMP now because they have really lost [a] lot of trust here,” Mr Watson said.

Call for action

Mr Peteh said that the brokerage is now contacting all AMP clients about this discount change to “be on the front foot” and suggested brokers should be aware of the change to ensure they’re educating clients that banks may change or remove discounts at short notice.

Meanwhile, Mr Watson advised any brokers who have placed a loan with AMP in the last six months to ask the lender for a list of clients that have been impacted by the change and reach out to all AMP clients to ascertain whether they have been impacted.

Mr Peteh concluded: “This kind of behaviour should be stopped immediately, and I advise other lenders considering similar tactics to seriously reconsider.”

The Mint Equity broker is now calling for “collective action” within the industry – calling on mortgage brokers, the Mortgage and Finance Association of Australia (MFAA), the Finance Brokers Association of Australia (FBAA), and the Australian Banking Association (ABA) to “denounce AMP’s actions unequivocally”.

The move comes as several lenders readjust their discounts and cashback offers for new borrowers amid a squeeze in margins.

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