How we do what we do
Reduce home loans has one purpose – to provide our customers with the lowest interest rates possible and help them find loans that meet their needs. It’s how we get our kicks, and the reason we get out of bed in the mornings!
Our recipe is simple – we take one part of our unparalleled experience, mix it with an equal measure of our first-class customer service, and finally we partner with Australia’s leading non-banks – to secure access to the best low-cost wholesale funders in the market.
Where do we get the funds for our loans?
Our funding is powered by wholesale lenders such as Origin, Bendigo Adelaide Bank, Pepper, LaTrobe, Sintex and BC Funding. They enable us to access competitive alternatives through a process called Securitisation.
Securi … what the?!?!?!
Ok – strap in, this could bumpy … but we’ll try to keep it as simple as we can. We’ll start by taking a quick flash back to the end of the last century.
While the producers of Friends were still looking for the cast, the Spice Girls were penning lyrical mastery with the words ‘zig-a-zip-ah’, and no self-respecting fashionista was without their MC Hammer pants, the traditional big banks had a monopoly in the lending space, meaning there was little to no competition for consumers. This changed in the early 1990s when non-banks were able to enter the market by securing funding through securitisation and delivering much-needed competition.
Put simply, securitsation is done by pooling groups of residential home loans together, and using them as security for investments bonds issued to institutional investors. These are known as Residential Mortgage Backed Securities (RMBS).
Through this process home loan providers – such as ourselves – are able to access low-cost funding lines for home loans. As an online provider with significantly lower overheads than the banks this translates to lower rates and enhanced solutions features for our customers.
Securitisation has become a major part of capital markets around the world, and Australian securitisation products have a strong reputation and performance in the global space. Funding provided under this method in Australia has increased from $2 billion p.a. in 1995 to $26 billion in 2013. Today, one fifth of all outstanding housing is financed this way.
Does this mean we control the rates?
Unfortunately no – as we are not the funder we do not control the rates. We act as an intermediary between our customers and the funders, and while we can negotiate with funders ultimately all final decisions relating to rates are made by them.
Why do rates change?
The wholesale lender’s ‘funding costs’ are linked to what’s known as the Bank Bill Swap Rate (BBSW) – a reference rate used as the benchmark for the pricing of Australian derivatives and securities and operates separately to RBA rate changes. When the BBSW increases the funding costs increase, and may cause lenders to increase their home loan interest rates.
What happens when rates change?
If a lender is increasing their rates they provide written notification to us and to our customers. Our customer service team is available to answer any of your questions or concerns. You can contact them by calling 1300 REDUCE (1300 733 823) or email email@example.com.