Swap banks to save
Customers shouldn’t stay with the same bank out of a misguided sense of loyalty, writes
YOUNG Australians have copped a lot of flak recently for their flippant spending habits, but new research shows this may be an unfair generalisation.
The annual Christmas Spending Survey by Homeloans. com. au revealed young Australians were the most committed to saving money in 2018.
Of the 800 respondents, 52 per cent aged 18- 24 planned to save more in 2018, compared with just 16 per cent of those aged 45- 64. Meanwhile, 68 per cent of those aged 18- 34 saved money regularly throughout the year to offset Christmas spending, compared with 24 per cent of 35- 44 yearolds and 19 per cent of those aged 45 to 65.
Younger people knew they faced a tough challenge to get ahead, said Will Keall, national marketing manager of Homeloans. com. au.
“The smashed avocado segment, as they’re referred to … that’s an unfair generalisation because they are focused on saving,” Mr Keall said. “From last year’s survey to this year, wherever there’s a change, it’s to do with people saving more and spending less.”
Rising energy prices and household bills, along with the expectation that interest rates will rise in 2018 are all factors influencing the saving trend.
“There has been inflation across the board, the costs of living have increased and property prices are off the scale,” Mr Keall said. “People have bigger commitments to mortgage repayments and something’s got to give. When interest rates go up it will change the goalposts even further.”
McCrindle social researcher Eliane Miles said millennial generations were more financially aware than in the past and feeling the pressure.
“One study found the top financial regret LOYAL mortgage customers who stick with their childhood bank are wasting thousands of dollars by failing to switch.
There’s fierce competition in the nation’s home loan market and customers are being urged to chase down cheaper deals in 2018 to help them save.
New data from digital mortgage broking platform Uno has revealed one in five mortgage customers have their loan with the same bank they for all generations was not saving enough, but Millennials topped all with 42 per cent, compared with 38 per cent for Gen X and 28 for Baby Boomers,” Ms Miles said. “Another showed 36 per cent of Millennials considered themselves extremely financially stressed and 87 per cent somewhat financially stressed, compared to just 13 per cent of Baby Boomers.”
ABS figures showed 25- 34- year- olds were the only 10- year age bracket to have retreated in income over two years, while household income has flatlined since 2009.
“House price growth has doubled wages over the past 10 years and young people feel locked out of the market,” Ms Miles said. “Young Australians are under immense pressure to match previous generations.
“The focus for a lot of young people with things like social media is how your life looks rather than how it actually is … that adds pressure in terms of feeling left behind.”
Emily Cullin is balancing starting some home businesses with raising a small child. She and her partner bought three properties in 2016, despite working average income jobs and having no help from parents.
She said it was important to leave emotion out of financial decisions.
“Due diligence is more important than feelings,” Ms Cullin said.
She saves money by buying second- hand as often as possible and making sacrifices to offset splurges.
“If you want your smashed avocado, find an extra way to make money so you can recoup that expense,” she said. “For example, sell something unwanted on Gumtree, rent your garage space or hop on Airtasker.” DUE DILIGENCE: Emily Cullin with her 10- month- old son Brooklyn, leaves emotions out of financial decisions.
Sophie Elsworth.
did as a child or they simply bank with the same financial institution as their parents.
Uno’s chief executive officer Vincent Turner said loyal owner occupier customers pay, on average, an interest rate of 4.5 per cent, putting them in a worse position than those who are not – they pay on average 4.3 per cent.
Disloyal investors are also getting better deals, paying around 4.6 per cent, while loyal investment loan customers pay an average 4.8 per cent.
“A home loan is one of the biggest financial decisions most people will ever make so it’s important to review the entire landscape of options to ensure you’re getting the best deal,’’ Mr Turner said. “The start of the year is a good time to do anything financially related, you get time to think about the year ahead and you have plenty of time on your hands.”
He also warned that customers often have their savings and loans with the same bank and instead they should “detach those two things” and cherry pick the best deals from multiple financial institutions.
Uno figures found on a $ 300,000 30- year owner occupier loan, disloyal customers typically pay an average interest rate of 20 basis points less, which saves them $ 12,600 over the life of the loan or about $ 420 per year.
In 2017 institutions continued to tighten restrictions on lending, requiring customers to save larger deposits and making it harder for borrowers to take out interest- only loans after crackdowns were implemented by the financial regulators.
But Tribeca Financial’s chief executive officer Ryan Watson urged customers to take stock of their finances in the year and this could mean switching banks to save.
“Unfortunately Australian banks don’t reward loyalty, as a rule they fall ‘ out of love’ with their existing clients,” he said.
“Banks take existing clients for granted so the only way to get a competitive rate is to shop around. Banks only respect consumers who do their homework and push for a really competitive rate.”
Mr Turner said owner occupiers should have an interest rate with a three in front and investors should be looking at the low 4 per cent range depending on the size of their loan and whether it is interest only.