Yahoo Finance Bank loyalty is dead: Aussies ditching lenders in droves
Many Aussies are fleeing their current lender in search of a better rate, proving bank loyalty is dead.
After a staggering 12 cash rate hikes over the past 17 months, Aussie homeowners are grappling with significantly heightened mortgage costs.
Combined with soaring prices for energy, groceries and fuel, a record-breaking cohort of Australians are now refinancing their home loans in pursuit of more favourable rates.
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Notably, a substantial uptick in homeowners are opting for external refinancing - transitioning to a new bank - rather than internal. This begs the question: has bank loyalty become a thing of the past in Australia?
This shift, Finder’s Housing Market Report 2023 has found, is prompting financial institutions to recalibrate their strategies to meet evolving customer needs. The likelihood of homeowners opting to refinance with new lenders highlights two key points - Aussies are experiencing substantial financial strain, and they believe their current banks are not delivering adequate value.
What are refinancers looking for in a new home loan?
Unsurprisingly, the pursuit of a lower interest rate emerged as the main motivator for refinancers in Australia. However, the inspiration to switch isn’t solely driven by a desire for lower rates. Additionally, the two primary reasons Aussies identified for refinancing were to access an offset account (34 per cent), or to capitalise on a cash bonus (22 per cent). This may explain the diverse range of cashback offers available in Australia at the moment, with multiple lenders offering up to $2,500 to borrowers who switch home loans.
Refinancing a home loan: How much can you save?
The next question is a tricky one: how much are mortgage holders actually saving after they switch?
We asked this question in two ways. First, we asked what interest rate borrowers were on, and what rate they switched to. On this question, borrowers generally cited savings of around 25 basis points - equivalent to one cash rate increase. When applied to the average mortgage, this works out to be a moderate saving of around $71 per month.
But we also asked respondents for the dollar figure value of how much they saved. The average figure here was a far more impressive $332 per month. The large difference between these two figures is interesting and suggests that borrowers may be much better at remembering how much they are actually paying per month rather than their interest rate.
What if you are paying too much?
As the chart above shows, the number of homeowners refinancing increased when the cash rate hit rock bottom, and accelerated when the cash rate started to climb. Borrowers who made the switch earlier, capitalising on the low rates, would have pocketed the most substantial saving.
In the early stages of 2022, my advice to homeowners in nearly every article and interview was to secure a low fixed rate while it was still possible. I took my own advice and switched to a four-year fixed rate with Commonwealth Bank at 1.89 per cent. It cost me around $2,500 in contract break fees at the time. Right now, I am saving about half of that in interest each month. The moral of the story? In the home loan market, making the right decisions early can save a lot in the long run.
Make the switch
When it comes to your home loan, it shouldn’t take a surge in borrowing costs to prompt mortgage holders to look for a better rate. Given that new customers often snag the best rates and deals, it’s worthwhile checking that you’re paying a competitive rate at least every couple of years.
Even if you can’t carve out significant savings on your monthly repayments upon switching, additional perks like cash incentives or offset accounts - which enable you to trim the interest you pay with your savings - can render the switch notably valuable.
More Australian homeowners are ditching bank loyalty and trying to find the best deal for themselves. Ultimately, enhanced knowledge about refinancing options shifts some power away from the banks, redirecting it back to the consumer - and that can only be a good thing.
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