‘Special’ home loans misnomer
OPINION: How did we ever allow banks to call their standard home loans ‘‘special’’ and their special higher-interest home loans ‘‘standard’’?
The answer is that we weren’t really paying attention as bank marketing executives worked their distorting magic on the English language.
In bank speak, a ‘‘special’’ home loan is one to someone who has more than 20 per cent equity in their home. These people qualify for the lowest loan interest rates.
A ‘‘standard’’ home loan is for people with less than 20 per cent equity. They pay more for their loans, about a fifth more.
Most people with home loans qualify for the ‘‘special’’ home loan rates, either because they have had their homes for a while, or because they managed to scrape together a 20 per cent deposit (thanks, bank of mum and dad).
Bank disclosure statements (which banks must publish, so the public knows what they are up to) show this clearly.
Westpac’s ‘‘special’’ rate, charged to people with a minimum 20 per cent equity (who also have their salary paid into a Westpac account) is 3.65 per cent for a oneyear fixedrate loan.
By contrast, its
‘‘standard’’ rate is 4.25 per cent.
But this is the inverted world of
English morphed by marketing, and only a tiny fraction of Westpac’s customers pay the ‘‘standard’’ rate.
Of the $58 billion of drawn home loans on its group balance sheet at the end of March, just over $5b had equity in their homes of 20 per cent or less.
It’s the same pattern at ANZ, where just under $6b of $106b of home loans were on loans where the borrower had less than 20 per cent equity at the end of September.
Now, the definition of special is something that is ‘‘not ordinary or usual’’.
By this definition, which is good enough for the Oxford English Dictionary, there’s nothing special about banks’ ‘‘special’’ home loan rates.
While this is an abuse of the English language, it’s not a breach of the Fair Trading Act, any more than that advert currently doing the rounds on a line of frozen meals which includes the ludicrous line: ‘‘Fresh from the freezer aisle’’.
This is a world in which there is a ‘‘special’’ price for my usual coffee. My coffee is on ‘‘special’’ every two weeks or so at my local supermarket. That’s when I buy it. I assume other shoppers do the same. Why would they pay $2 a bag more when it is not on ‘‘special’’? This means the ‘‘special’’ price is the usual price, and hence not special at all.
The home loan ‘‘special’’ language inversion came about after the global financial crisis more than a decade ago.
Banks used to charge people with small deposits a ‘‘low equity’’ premium or fee, and in most cases paid the same, or a very similar, interest rate to other borrowers.
That changed as banks were required to hold more capital against riskier loans. Competition for high-equity loans led banks to cut rates on the more attractive loans in a bid to secure more of them.
In the early days of ‘‘special’’ loan rates,
■
■ they really did seem special, and worth pointing out.
But those days have now gone, and it is time to revert to the original meaning of special, especially as bank after bank restricts loans to people with small deposits.
Special is also a better word for the higher-interest, low-deposit home loans, and their borrowers, for another reason.
In these days of ludicrously high property prices, you have to be special just to get a home loan.
Special in that you have a large income, a large inheritance, or wealthy parents, that is.