Borrowers pushing for ‘health check’ on home loans: Aussie

Aussie chief James Symond says home loan borrowers are increasingly shopping around for better deals.

Aussie Home Loan chief executive James Symond.

Aussie chief executive James Symond says home loan borrowers are becoming more alert to the higher interest rates banks charge existing customers, a so-called loyalty tax, and are increasingly shopping around for better deals.

He told The Australian that record low rates and a spotlight on the pricing differential between existing and new borrowers was spurring more people to do “a health check on their loan”.

“People are slowly listening,” Mr Symond said of borrowers understanding the loyalty tax issue and seeking out better rates offered by lenders to new customers. “The options and the opportunities out there are very strong.”

His view was backed up by a survey of 1058 mortgage holders commissioned by mortgage broking group Aussie and conducted by Lonergan Research.

About 69 per cent of poll respondents said it was a good time to refinance their home loan, with millennials the highest-scoring group within that. The most commonly cited reason by borrowers to refinance was to secure a lower interest rate.

The survey is congruent with data from online broker Lendi that shows the number of borrowers applying to refinance their mortgage climbed during the pandemic lockdown and remained 24 per cent higher in the four weeks to mid-May, versus the pre-COVID-19 period.

The loyalty tax issue has been a strong debating point within the industry over the past 12 months.

In February, the Reserve Bank of Australia noted that just under half of all variable-rate home loans in its ­securitisation dataset were originated four or more years ago, with those mortgages having an interest rate about 40 basis points higher than new loans.

The difference was earlier dubbed a “loyalty tax” by politicians, including Josh Frydenberg, with the Treasurer likening the banking industry to the energy sector.

But the banks have defended the claims, saying older mortgages reflected the funding costs and other pricing factors at the time a loan was written.

Reserve Bank data last week showed housing credit increased 3.1 per cent in the 12 months ended April 30, down from 3.8 per cent in the prior year. Total credit was steady at 3.6 per cent growth in the 12 months to April 30, underpinned by an acceleration in business lending.

Mr Symond said banks were upping the competitive dynamics around low rates and cashback ­offers to win mortgage business, despite the challenges posed by more rigorous credit policies related to COVID-19.

“The banks are being ultra-competitive, where they want to be,” he said. “Competition is as ferocious today as it’s ever been, and consumers are as confused as they’ve ever been.”

The Aussie survey showed almost four in five mortgage holders were confused about refinancing, with many believing it involved negotiating a lower rate with their current bank.

Refinancing involves switching to a different lender to secure a lower interest rate or better terms.

Mr Symond said a borrower with a $400,000 mortgage would save about $2000 a year on their payments if they reduced their rate by 1 per cent.

The survey also pointed to some borrower inertia, due to prevailing uncertainty in the economy. About 30 per cent of respondents said during uncertain times they wanted to stick with their current mortgage.

“Because the process is seen as all too hard, complacency is a key thing here and it is the wrong attitude,” Mr Symond said. “It’s the biggest financial decision of people’s lives, in most cases.”

The banking industry confronts a tough period ahead as it prepares for a spike in expected pandemic-related loan losses. The value of loan deferrals for businesses and households has hit $250bn, as banks provided repayment pauses during the depths of the crisis.

The Aussie poll showed the three most popular sources of information for home loans were mortgage brokers, a lender’s website or speaking directly to someone at a financial institution.

Due to COVID-19, the broking industry was last month granted respite from implementing the Hayne royal commission’s recommendations, including a requirement that mortgage brokers act in customers’ best interests.

While that duty now comes into force in January rather than July, Mr Symond said Aussie would look to implement the policy in coming months.

Commonwealth Bank has owned 100 per cent of Aussie since 2017.