Australian homeowners are being slugged with an extra $70,000 over the life of their loan by staying loyal to the big four banks and failing to refinance, new research has found.
It also revealed that the big four banks are raking in $4.5 billion each year as a result of the “loyalty tax” as the Reserve Bank of Australia’s (RBA) super-sized rate hikes are passed on to existing customers.
The RBA has raised interest rates from a record low of 0.1 per cent to 1.35 per cent since May.
The big banks are offering lower interest rates to attract new customers, the research from mortgage broker Lendi showed, while current homeowners are smashed by interest rate rises yet could make huge savings by switching home loan providers.
Lendi’s data showed that at the big banks existing customers are slugged an extra 0.91 per cent on interest rates compared to the offers for new customers.
This means at a big bank, customers are paying an interest rate that is 0.91 per cent higher – forking out an extra $70,000 over the life of a $500,000 loan.
Overall, the whole banking sector is charging current customers interest rates that are 0.86 per cent higher compared to new clients.
On Friday, ANZ Bank announced it would reduce standard variable interest rates for new customers refinancing to the big bank by between 0.1 and 0.5 per cent, yet it passed on the 0.5 per cent hike from July to existing customers.
Lendi chief executive David Hyman said when customers special fixed rates finish, most would not revert to the best available rate.
Instead, he advised customers to call their banks to ask for the same deals as new customers.
Record levels of refinancing
But a record 332,000 Aussies refinanced their properties in Queensland, New South Wales and Victoria in for the 2021/22 financial year, up 29 per cent on the previous 12 month period, according to the latest analysis released by digital settlement provider Pexa Insights.
Victoria recorded the highest volume of refinancing at 131,000 up by 23.7 per cent year-on-year followed by NSW with 127,600 an increase of 25.8 per cent year-on-year.
QLD experienced the highest growth in refinancing with 73,000 up 49.8 per cent for the last financial year.
All three eastern states recorded in excess of 150,000 new residential loans each, with QLD leading the way again with 160,000 home loans completed in the last financial year.
More than 472,300 new home loans were taken out across the eastern states with Victoria posting the highest growth in both new residential loans with 157,660 loans up 10.4 per cent year-on-year.
Mike Gill, Pexa Insights’ head of research, Mike Gill, said initially Australians were taking advantage of record low interest rates to refinance.
“There is now a clear correlation between the high numbers we saw during the financial year 21/22 and the Reserve Bank of Australia’s determination to lift interest rates twice before the close of the financial year,” he said.
“The record levels of new loans coincide with the strong buying and selling activity witnessed throughout the first half of the financial year 2022, in particular in Queensland which has experienced a state-based property boom across home buying and selling.
The race to attract new customers has become “highly competitive” between major and non-major banks for new loans across all three eastern states, he added.
“However, non-major banks recorded higher win/loss numbers for refinances in the same regions,” he said.
“Strong competition within the lending market can only lead to positive outcomes for consumers.”
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