Yellow Brick Road to offer “true rate” mortgages

Yellow Brick Road (ASX: YBR) has announced it is phasing out temporary rate discounting and introducing “true rate” mortgages, “without the frills of fancy discounts and introductory offers”. In a swipe at the major banks, executive chairman Mark Bouris claimed potential borrowers have been confused by the welter of bank advertising emphasising discount, honeymoon and conditional offers only. After all, most housing loans are very long term.

So how do Yellow Brick Road’s rates compare with rivals?  According to Andrew Duncanson, Research and Insights Director for independent rate comparison site Mozo, “Yellow Brick Road’s Rate Smasher home loan undercuts every advertised variable rate available through the major banks’ branch networks.”

However the Rate Smasher requires a 30% minimum deposit effectively making it only suitable for investors or borrowers upgrading. A fairer comparison would be Yellow Brick Road’s Empower home loan range which is still highly competitive on a quick check — 5.19% for borrowers with a loan-to-value ratio of 80% or lower and 5.24% for borrowers who don’t have a 20% deposit. These figures will of course change if the Reserve Bank reduces rates Tuesday.

Although yet to turn a profit, Yellow Brick Road is gaining significant traction having enjoyed its best ever quarter recently. Expansion into a range of financial services is also gathering pace. Significant funding is provided by Macquarie Group (ASX: MQG), which is also a major shareholder in Yellow Brick Road.

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Motley Fool contributor Peter Andersen owns shares in Macquarie Group.

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