Borrower refinancing rush puts banks on notice
New ABS figures have revealed nearly 100,000 home loans were refinanced in the June quarter. That's more than 1000 mortgages switching every day.
We are more engaged with our mortgages than ever before and we're more than willing to demand more from our banks or take our money elsewhere.
This has been bad news for banks because it means they can no longer rely on us paying them a loyalty tax … or as they would see it, a lazy tax.
Once upon a time, a bank would come to your primary school, give you a toy and let you open up a savings account. This was dressed up as educating young people about finance, but of course it was really about recruiting lifelong customers that would eventually take out a home loan and pay the bank hundreds of thousands of dollars in interest.
When I was a kid, families very much stuck with their same bank for their whole lives. They might switch here and there, but always between the big four and often it was about the customer service experience. Did they like their bank manager? Was there a branch in their suburb or town?
In hindsight, it's amazing how much we trusted and liked our banks, considering at one point we were paying them about $25,000 in interest a year on a loan worth $140,000. Meanwhile, the bank saved its best deals for new customers and retaining those who threatened to leave.
Now, things are different. You no longer have a bank manager, you probably don't have a branch and your customer service experience involves being on hold for long periods of time with an offshore call centre.
The good news is that there are now more than 100 lenders to choose from. The competition for cheaper rates keeps heating up and if you stay on top of what is out there, you can make sure you don't pay a cent in lazy tax.
The RBA just announced its third rate cut of the year. Traditionally, when there are back to back rate cuts, banks start only passing on some of the savings, or none at all, but we have had them on notice since February, when we started naming and shaming lenders who had not passed on savings to customers.
Once the May rate cut came around, lenders acted faster to keep customers happy. And after the RBA lowered again in August, it only took two days for 85 lenders to announce variable rate cuts; all of them by the full 0.25 per cent.
Not bad when you look at the past record of the big banks.
Before this year, there had been 10 RBA rate cuts over a decade. A Canstar analysis revealed that of the 10 cuts, only four were passed on in full by CBA, NAB and ANZ. Westpac could only manage two. Westpac has therefore passed on more rate cuts this year than it did over the previous decade.
Could people power be making a difference? Could a lack of loyalty finally be a two-way street?
Banks have finally realised they need to compete for our money. And when you think about how much money we pay them – double the cost of our homes and then some- in interest over the life of a loan, we really should all be VIP customers. We should be their corporate box guests at grand finals and F1 races. They should be sending us flowers and gift hampers and finding all sorts of ways to sweeten the deal for us, rather than quietly charging us more interest than their new customers and hoping we don't notice.
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