The royal inquiry into the banking and superannuation industries is well under way and is already producing plenty of juicy headlines.
Over the past week, various reports had indicated that the Big Banks may have favoured profits over consumer protection
A Productivity Commission report earlier this year also has found that banks didn’t hesitate to reprice investment loans under the guise of adhering to APRA lending restrictions.
Those loan increases – for all new and existing investor as well as interest-only customers – reportedly tipped multi-millions into bank coffers.
While more salacious details are likely in the months ahead, there has been one very important insight thus far if you ask me.
According to the Productivity Commission report, one in two customers has remained loyal to their first-ever bank.
However, in return for their loyalty, customers have been “ripe for exploitation”, such as paying higher rates for investment loans that they may have held for years or decades.
Plus, the report said that only one in three have considered switching banks in the past two years, accepting interest rates on home loans up to 0.4 per cent higher than new customers.
Take control of your finances
As a professional mortgage broker, some of the practices mentioned above do concern me, but it also highlights that the banking system has changed fundamentally.
What I mean by that is the days of banking with one lender your whole life is not necessarily the best wealth creation strategy.
You see, financial success is all about maintaining control over your finances so having all your money eggs in one lender basket means that they probably have more control than you.
This is especially true for borrowers who have cross-collaterised properties all with one lender, which can severely restrict what they can do with their portfolios.
For example, say you want to sell a property, however the value of one of your other properties has reduced.
The bank will want to take a slice of any sales profits before you get any proceeds because they literally hold all the mortgage keys.
With a cross-collaterised portfolio, if you want to buy or sell, the bank will have all of your properties revalued, which could be a bad thing if prices have softened.
That’s why it’s always a good idea to share the finance love.
Lenders want your business and are happy to compete for it.
Most successfully investors have mortgages with a number of different lenders.
Not only does that mean that they retain more control over their portfolio, but they can benefit from different rates of interest.
Educated investors review their portfolios annually and assess whether they should refinance some properties to different lenders to take advantage of what they currently have on offer.
By doing that, they have more control over their financial futures – and that always has been one of the keys to property investment success.