Borrowers let banks off hook on rate cuts

The big banks don’t always offer the cheapest deals on mortgages, writes Sophie Elsworth

JUST one in 150 home loan customers bother to phone up their bank and demand a better deal, it can be revealed.

Despite dozens of lenders failing to pass on last month’s cash rate cut in full, multiple banking sources have told News Corp how few customers took them to task on why they didn’t receive the full rate cut.

The Reserve Bank of Australia board cut the cash rate to 0.75 per cent last month. It is not expected to drop further when the board meets tomorrow.

Mortgage Choice broker James Algar said once borrowers had secured their home loan they “lose interest and the banks take advantage of that”.

“We regularly see borrowers with rates around 4.8, 4.9 and in the fives on owner occupier principal and interest loans.”

Mr Algar said in many instances he was able to take off at least 1 percentage point on a borrower’s home loan rate.

Data from financial comparison site RateCity shows on variable home loans the cheapest deals start at 2.74 per cent.

The big four banks passed on between 0.55 and 0.59 percentage point drops of the 0.75 point cuts this year.

‘We are now paying $90 less per week than we were’ Former NAB customer Simmone Le Raye

SAVVY borrowers who are on the lookout for better mortgage deals are turning to smaller lenders to save money.

Australia’s customer-owned banking sector’s portion of housing loans climbed by 7.8 per cent in the 12 months to June, in contrast to the major banks, whose share grew by just 2.6 per cent.

However, the big four banks still dominate, holding 82.1 per cent of all housing loans in June, according to banking regulator data. Customer-owned banks, such as credit unions, held 5.4 per cent and other lenders had 12.5 per cent.

A spotlight was put on the big four banks last month when they failed to pass on the Reserve Bank of Australia’s 0.25 per cent cash rate cut in full. The big four lenders – the Commonwealth Bank, Westpac, ANZ and NAB – passed on cuts between 0.13 and 0.15 percentage points.

Simmone Le Raye, 39, is among those who have opted to try smaller banks. This year she refinanced her three-bedroom home, switching her mortgage from NAB to lender ME.

Paying an exorbitant interest rate of 4.76 per cent, she said to her husband Michael, “Let’s get away from the big four banks and look elsewhere”.

“We went from paying 4.76 per cent down to a three-year fixed rate of 3.73 per cent,” Mrs Le Raye said. “We are now paying $90 less per week than when we were with NAB.”

The pair consolidated their credit card debt into their mortgage and also purchased new furniture, taking out a loan of $260,000. Their repayments fell to $270 per week.

Federal Treasurer Josh Frydenberg last month ordered the consumer watchdog, the Australian Competition and Consumer Commission, to investigate the big banks’ refusal to pass on the recent spate of interest rate cuts in full.

The Customer Owned Banking Association’s director of strategy, Sally Mackenzie, said the financial services royal commission had “highlighted the benefit to look around at other providers in the market”.

“There are some really good alternatives out there in the market if people look beyond the big four,” she said.

Canstar found, on a $300,000

30-year home loan, the average variable rate for the big four banks was 4.01 per cent, compared with 3.82 per cent for the rest of the market.

For a borrower paying 4.01 per cent, their monthly repayments would be $1434 compared with those on 3.82 per cent paying $1401. It’s a saving of $11,770 over the life of the loan.

Mortgage Choice broker Scott Bament said he was writing a lot of loans with smaller lenders.

“I think the big four banks have lost a lot of trust,” he said. “Customers are more than happy to look at other institutions.”

Mr Bament said owner-occupier borrowers paying principal and interest should be looking for rates “in the very low threes”.