Mortgage owners urged to change lenders to avoid hefty ‘loyalty tax’

Stressed-out mortgage holders have been advised to change their lenders, as new figures show ‘loyalty tax’ will add $20,000 in extra repayments over the life of a loan.

Australian mortgage holders who have stuck with the same bank as interest rates soared are being hit with almost ­double the “loyalty tax” for not shopping around.

Households are being urged to switch to lenders offering better mortgage deals because many banks have cut their introductory offers to remain competitive, while still passing on full Reserve Bank of Australia rate rises to existing customers.

Over the life of a $500,000 loan, a homeowner who stayed with their current bank would end up paying $20,000 more in mortgage repayments than if they switched to a cheaper offer, according to analysis of variable rate mortgages.

It can be revealed the “loyalty tax” gap has surged to 0.5 per cent as of January this year, with existing variable loans offering an average 5.46 per cent interest, compared to 4.96 per cent for new customers.

Only two years ago, in May 2021, the average existing home loan rate was 3.07 per cent, compared to 2.76 per cent for new customers — a gap of only 0.31 per cent.

Talking to a new lender could bring your home loan interest rate down by 0.5 per cent. Picture: iStock

Assistant Competition Minister Andrew Leigh said the loyalty tax showed the ­importance of a competitive Australian banking sector.

“I’d encourage homeowners who think they might be paying the loyalty tax to shop around and see if you can get a better deal,” he said.

Assistant Competition Minister Andrew Leigh. Picture: NCA NewsWire / Gary Ramage

“You might save money on your home loan, and if you leave, you’ll remind your bank that it can’t take its loyal customers for granted.”

Mr Leigh said it was “not fair” mortgage holders were paying for loyalty, while the big four banks posted a record $33bn in profits this year.

“At a time when many mortgage holders are feeling the squeeze, banks should be considering their customers, not just their shareholders,” he said.

“The loyalty tax shows the importance of competition in the Australian banking sector.”

Research produced by broker Mortgage Choice this year found 71 per cent of borrowers surveyed would be “very” or “somewhat” likely to switch lenders if they felt they were no longer getting the best rate available.

Mortgage Choice chief executive Anthony Waldron said Australians could seek help from their broker to compare a wide range of products and lenders to ensure they were getting the “best loan” for their needs.

“Unless Australian lenders begin offering the same rates to new and existing customers rather than focusing on low introductory rates and cashback offers, it will pay to regularly review your home loan,” he said.

About 68 per cent of Mortgage Choice survey respondents said they would prefer banks offered the same rates to both new and existing customers, to avoid having to switch.

Mr Waldron said borrowers clearly believed they should be “rewarded” for their repayment history and choosing to stay with their current lender.

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