rates that are being offered to loyal home loan customers and what they charge to entice new borrowers. According to the report, new borrowers were paying significantly lower interest rates on average, and hence the regulator recommended that lenders regularly inform borrowers with home loans older than three years to review their current interest rate and consider potential benefits of switching products or lenders.
However, more than two years later, financial service providers have failed to act on this recommendation, costing millions of customers thousands of dollars in extra repayments. Despite the reserve Bank’s cash rate being retained at a record low, the ACCC’s final report, which was published late last year, revealed that the so-called loyalty tax home loan customers has escalated to 39 basis points. This is owing to the fact that lenders are attempting to build their loan book and boost profits by slashing their new variable rates, while increasing fixed rates.
Accordingly, the regulator noted that about $3900 in additional costs are being paid each year by a borrower with an average $1 million variable loan, in comparison with the charges levied on new borrowers. The situation is much worse for a borrower who is stuck with a home loan of $1 million which was taken more than 10 years ago, as the difference for this borrower is more than $13, 000 a year.
“Australian home owners are literally losing thousands of dollars that could be used to pay off their home loans faster (or to pay other bills that keep the household running) purely because of their loyalty to their existing lender,” Angus Gilfillan, chief executive of a digital mortgage broker Finspo, said, adding that ACCC’s recommendation to lenders had “largely fallen on deaf ears”.
According to experts, while customers with bigger deposits are in a better position to negotiate lower rates, lenders are also open to negotiating with existing customers with a good repayment history. If the borrower is considering switching his lender, it is imperative to check on the fee charges, they warn, pointing out that breaking a fixed loan may cost several thousand dollars.
