Advertising the key

Consumers' Institute boss David Russell gives his reasons why banks can take such fat margins on floating rate home loans.

Friday, August 30th 2002, 6:28AM

by Jenny Ruth

The reason the five major banks have been able to maintain such fat profit margins on their floating rate mortgages comes down to the power of advertising, says Consumers Institute chief executive David Russell.

That’s despite the many competitors offering significantly lower rates.

"The major advertising for mortgages comes from the banks. The only conclusion we can draw is that they’re doing very nicely," Russell says.

All five of the major banks have lowered their floating rates since the Reserve Bank left interest rates unchanged earlier this month, but their profit margins remain at the extreme upper limit of their usual 150 to 200 basis points above the 90-day bank bill rate.

Four of the five now have 7.85% floating rates and National Bank’s is 7.8% while the 90-day bank bills are trading at 5.87%. By contrast, the government’s Kiwibank’s floating rate is 6.95%.

Russell says the next magazine will contain the results of a large survey of customer satisfaction and will also include comments on bank fees, although not specifically related to mortgages.

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