Existing borrowers are finally starting to get rewarded for their loyalty, as the latest insights from Australia’s biggest financial comparison site revealed a narrowing gap in the interest rates offered to new and existing borrowers.
Canstar’s analysis of Reserve Bank lenders’ Interest Rate data showed that before the beginning of the current rise cycle, there was a gap of 0.45% in the interest rates, with existing borrowers paying an average variable rate of 2.86% and new customers, 2.41%.
That gap widened by December 2022, to 0.51%, with existing borrowers paying an average variable rate of 5.49% while new customers were paying only 4.98%.
Fast-forward to the present day and the latest data for May 2023 showed the gap narrowed down to just 0.37%, with existing borrowers paying an average rate of 6.03% while new customers were paying 5.66%.
Effie Zahos (pictured above left), Canstar’s editor-at-large and money expert, said lenders were shifting gears, as the latest lending indicators from ABS showed an 18% decline year-on-year in the value of new housing loan commitments and more than $20 billion in loans refinanced to a new lender.
“With fewer new borrowers entering the market and a remarkable volume of loans being refinanced, lenders are being forced to put more effort into retaining their existing customers,” Zahos said.
“The good news for borrowers is existing customers may be able to negotiate discounted rates to rival some of the deals offered to new customers. Finally, it looks as though the higher price borrowers pay for being loyal to their lender is narrowing.”
Canstar’s research showed that a rate discount of 0.25 percentage points on a $500,000 loan over 30 years could slash $84 off from $3,320 in monthly repayments to $3,236 – that’s a saving of $1,008 in the first year.
“That could be the cost of your annual car or home insurance, so it’s worth chasing,” Zahos said.
Connect2Broker, Canstar’s mortgage broking partner, said banks might be willing to negotiate with their borrowers to keep their business if they’ve been loyal customers and were in a good position to refinance.
“Our brokers are reporting that borrowers who have been loyal to their lender, have solid equity in their loan, and are showing a real motivation to refinance have been securing rate discounts,” said Ray Hair (pictured above right), Connect2Broker managing director.
“The appetite to retain good customers is the driving force for lenders and they are being selective about the customers they want to keep. Some borrowers have even been offered cash incentives by their current lender to stay put.”
Hair said brokers should act in the best interests of the customers and always seek to obtain a better rate from the customer’s existing lender before seeking to refinance the customer elsewhere. Many customers, however, he said, were “tired of being taken for granted and insist on being refinanced.”
Canstar offered a checklist for borrowers to be in the best position to negotiate a rate discount:
- LVR of less than 80% of the property value
- Loan amount of $500,000 or more
- Looking to switch from a fixed rate to a variable rate
- Making principal and interest repayments on the loan
- Good loan conduct by repaying on time with no arrears and no defaults
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