Mortgages that come as part of packages containing bank accounts and credit cards accounted for 52% of mortgages issued in Australia in the quarter to June 2007, according to mortgage broker Smartline. This is a 36% increase from last year's figures.
These products are appealing to banks as they capture all of a customer's banking business, and make switching institution harder. For mortgage holders, a package deal can entail a rate discount of up to 70 basis points on the mortgage, as well as providing a convenient banking solution. Package deals combine different products' transaction fees into a set annual fee, typically around A$300 to A$400.
In previous years, so-called 'professional packages' were only available to high-income borrowers with large mortgages. However, recent competition has led to these products being offered to customers with average-sized mortgages, fuelling a proliferation of package deals. There are now several grades of packages, each with its own associated trade-off between discounts and fees.
The package deals market is expected to continue growing as there are still consumers unaware of the existence of these deals who represent potential future customers. Recent attention in the media will serve to boost the number of customers asking for mortgage package deals. Moreover, competition between banks is likely to lead to package deals being offered to an increasing number of customers as restrictions on availability are relaxed.
The emergence of package deals has helped banks regain market share from non-bank lenders as banks can sell mortgages to their accounts and cards customer base. Non-bank lenders, meanwhile, are facing a competitive disadvantage from package deals, which they must address. One possible solution would be for non-bank lenders to team up with credit card companies and smaller banks to emulate package products by offering cross-product discounts.