Mortgage borrowers reluctant to switch lenders

2021 study shows higher interest rates could change minds

Mortgage borrowers reluctant to switch lenders

Mortgage borrowers appear reluctant to switch lenders, a 2021 survey showing just under a third didn’t switch for a better deal – nor did they intend to.

But if the Reserve Bank of Australia’s official cash rate, currently at a record-low 0.1%, increases on Tuesday, seeing their repayments increase could give borrowers more of an incentive to switch.

In a report on whether mortgage lending is competitive in Australia, online asset finance broker and comparison service Savvy said data from Statista showed the mortgage market was dominated by the big four banks, which collectively had just over 77% market share at the end of 2021.

According to Statista and APRA, as of January 2021, the mortgage lending market was dominated by the Commonwealth Bank of Australia (CBA) with 25.90% share, up from 25.54% in 2020, followed by Westpac Banking Corporation, with 22.5% share, down from 23.36% in January 2020.

The Australia New Zealand Banking Group (ANZ) came in third place, with 14.54% share (up from 14.11%), slightly ahead of National Australia Bank (NAB) at 14.44% (down from 14.94%).

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Non-bank lenders, small credit unions and alternative funding sources, classified as the “other category”, accounted for 8.57% of the market, down 0.02% from the previous year.

Macquarie Bank Limited market share climbed from 2.59% to 3.32%. Similarly, Bendigo and Adelaide Bank climbed from 2.47% to 2.68% across the January 2020 to 2021 period, while market share of Suncorp-Metway Ltd declined from 2.48% to 2.34%

Discussing Statista data published by Canstar in a 2021 Consumer Pulse Report, Savvy CEO and founder Bill Tsouvalas (pictured) said he was surprised to see a large percentage of borrowers hadn’t negotiated a better deal with their lender in the last year. 

Asked whether they’d negotiated a better interest rate on their mortgage with their lender over the last 12 months, the highest percentage (41%) said they hadn’t discussed a better rate and don’t intend to and 4% were unsure.

Asked whether they’d switched their mortgage lender for a better deal over the last 12 months, 65% said they hadn’t and don’t intend to.  Just 17% said they hadn’t switched but intend to, with only 11% saying they’d made the switch.

“According to Statista, only 11% of Australian mortgage holders have switched mortgage lenders for a better deal in the last twelve months over 2021,” Tsouvalas said.

“What’s incredible to me, having spent the bulk my career in personal finance, is that 65% of Australians haven’t switched and have no intention to switch.”

This was buoyed by the fact that 28% of survey respondents said they had successfully negotiated a better rate with their current bank or lender, he said. 

“[This is] a positive sign that banks are aware of the competitive nature of the mortgage market and will attempt to accommodate to the needs of their customers,” Tsouvalas said.

Many borrowers are likely to have locked in fixed rate loans, with the view they were unlikely to get a better deal elsewhere at the current time.

The Gillard government outlawed early exit fees on variable rate mortgages, though they still exist on fixed rate loans, creating an incentive to stay with a lender.

But as rates rise over coming months and years, after seeing their repayments increase, Savvy said borrowers on variable rates are likely to see more of an incentive to switch.

“I suspect that these naysayers will be eyeing off the market closely as the Reserve Bank moves to increase interest rates to combat rising inflation. Those who can lock in competitive rates now will be in a far better position than those who try to get a better deal after the horse has bolted,” Tsouvalas said.

Read more: Inflation hits 5.1% - will it force RBA to lift interest rates?

Savvy analysis showed mortgage debt across Australia has been on a steady increase since 2011, topping out at $2.013bn in 2021.

“As we surmised, this may be due to record low interest rates, government initiatives and a rush to get the jump on rising inflation,” Savvy said.

Analysis of mortgage holdings by lender showed CBA ranked first, with $308.7bn in owner-occupier mortgages and $159.2bn in investment mortgages, for a total of $467.9bn.

Westpac had $229.9bn in owner-occupier mortgages and $176.7bn in investment lending, investment lending representing 43.5% of total mortgage lending.

ANZ and NAB posted almost identical figures, with ANZ lending reaching $262.7bn and NAB at $260.9bn.

ING Bank held $43.4bn in owner-occupier mortgages, with only $8.3bn for investments – a share of 16%.

The non-big four or “lower six” banks had around $174.9bn combined in owner-occupier mortgages, while the ‘other’ category held $118.7bn in owner-occupier mortgages and $36.1bn in investment housing, a total of $154.8bn.