Four in five borrowers make $18,000 mistake

There is a simple way to save thousands on your home loan, but most Aussies ignore it. Here’s how to save big on your mortgage.

Almost 80 per cent of new loans went to the big banks last year, despite their products being some of the most expensive available, data shows.

And borrowers know this. Mozo data shows almost one in two start looking at cheaper online lenders, but in the end most go with what they know: the big banks.

The difference between the cheapest offers from the big banks and online lenders can be $18,011 on a $400,000 home loan over 30 years, Mozo housing expert Steve Jovcevski said.

The average size of a home loan in Australia for first home buyers last year was $338,900, while for owner occupiers it sits higher at $386,300.

“Consumers at the moment are pretty cash strapped; more than ever people are looking to save,” Mr Jovcevski told news.com.au.

According to Mozo data, the cheapest rate on offer by an online lender at time of publication was 3.67 per cent, compared to the cheapest offer from a big bank at 3.89 per cent.

However, most borrowers don’t even receive that offer from the big banks, with many on outdated rates of about 4.5 per cent or higher. This means many who refinance could save thousands.

Several banks have also engaged in out-of-cycle rate rises as the cost of borrowing on international money markets has grown. Just last week, Bank of Queensland raised rates by between 11 and 18 basis points.

Housing finance in Australia has continued to be a sore point for many. Australian Bureau of Statistics data released this week showed the value of housing finance commitments continued to deteriorate on the back of tightening lending restrictions from the big banks.

Seasonally adjusted dwelling finance fell by a further 2.5 per cent between November and October 2018. Refinancing even fell 1.8 per cent, suggesting fewer Aussies were looking to improve their mortgage rates.

Fewer Aussies are choosing to refinance their home loans.

TIGHTER LENDING TEMPTS BORROWERS TO LOOK ONLINE

Steve Mickenbecker, group executive of comparison site Canstar, said Australians looked at online lenders because they were attracted by the low prices, but many chose to pay more because those banks integrated easily into how they already banked.

“It’s not an illogical behaviour,” he said.

“The proof of the pudding is in the eating, at the end of the day people are taking their loans to the big banks.”

Realestate.com.au home loans expert Andrew Russell said interest rates had always been the attractive hook for new borrowers, but many choose to go with banks they had been with before.

But he said that the tightening of credit had created opportunities for the smaller lenders to help those shut-out of the market.

“It’s great to see competition in the market and it’s great to see the second- and third-tier banks thinking about what customer needs aren’t being met,” he said.

Online lenders are often cheaper than big banks as they avoided the costs of branches and other legacy institutions. However, the big banks have seen the writing on the wall. Some lenders such as NAB have launched their own competitors, such as Ubank.

Others have bought competitors in the space, such as when the Commonwealth Bank acquired mortgage broker Aussie.

“The banks are savvy enough to know that’s the way the market is moving,” Mr Jovcevski said.

“It’s interesting to see that the banks hold a huge share of the market.”

BAD MEMORIES FROM GFC SUPPORT BIG BANKS LENDING

Mr Jovcevski said people were ultimately choosing to go with the big banks because they were more confident in the big four — despite it costing more.

“There’s the fear that something will go wrong, and that’s why the banks continue to hold a lot of the market,” he said.

“The online lenders have better rates and better overheads, but the big problem a lot of them is the trust factor.”

Mr Jovcevski said some people still had fears from the dark days of the global financial crisis, which saw small lenders in Australia, such as RAMS home loans, be acquired by big banks.

Originally published as Four in five borrowers make $18,000 mistake