On the hunt for a new loan provider?

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One in 10 consumers have switched credit products in the past year, according to new research, with Millennials and women in particular pouncing on offers from small banks, credit unions and building societies.

The financial landscape is shifting.

Over the past 12 months, 10% of consumers have switched credit providers, according to the Australian Consumer Credit Pulse 2019 report from Equifax, as once-loyal customers increasingly check out what lenders outside the Big Four banks have to offer.

Is now a good time to consider a switch?

With the RBA recently delivering back-to-back rate cuts, there’s no shortage of borrowers who are considering following suit and switching things up.

In fact, a further 11% of consumers intend to apply for credit in the next three months, says Equifax, and of these, half are looking to switch providers when they make their application.

James Forbes, General Manager, Marketing Services at Equifax, says that over the past 12 months the Big Four banks have ceased to be the first preference for many consumers who are switching credit products.

“Instead, they’re increasingly choosing small banks, credit unions and building societies,” Forbes says.

So what credit products are people switching?

Home loans and credit cards. They’re the big two.

Of the one in 10 people who made the switch over the past year, a quarter moved their home loans and nearly half moved their credit cards.

Home loans are also a popular product among the 11% of consumers intending to apply for credit in the coming months, making up half of the intended applications.

Who’s switching things up?

According to the report, the younger you are, the more likely you are to switch lenders.

In fact, out of all consumers who switched credit products in the past year, 43% were aged 18-34, and 32% were aged 35-50.

Women are also more likely to switch three or more of their credit products, while men are likely to switch just one or two.

What’s driving the behaviour?

Unsurprisingly, lower costs – including interest rates and fees – were the major consideration for switching across all credit product types, Equifax says.

However, consumers also cite better customer service and brand reputation as important considerations.

“In the wake of the Royal Commission, consumers are increasingly thinking about more than just cost when applying for credit,” says Forbes.

Keen to pounce?

With the RBA recently delivering back-to-back rate cuts, if you haven’t looked into your refinancing options lately, now might be the time to consider doing so.

Rest assured that we’re following the market closely and will be happy to run you through some mortgage and refinancing options if you’re on the hunt for a new lender.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

With home loan interest rates dropping, is it time to pull the cord?

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Fixing your home loan while rates are dropping is a bit like pulling the ripcord on a parachute. If you do it early you’ll get a steady ride but may miss out on a bit of action. But if you leave it too late things might get a little messy.

To fix the rate or not?

That seems to be the question on a lot of people’s lips at the moment.

We’re just a few months into 2019 and already 44 lenders have dropped rates on more than 500 fixed-rate home loan products.

These discounts aren’t just being offered by smaller lenders trying to attract new customers, either.

Commonwealth Bank, Westpac and NAB have all announced significant fixed rate cuts, while ANZ recently offered a discount to the headline rate on its flagship variable rate product.

To fix or not to fix?

When there are so many lenders scrambling over each other to cut rates, a question we often hear from clients goes something along the lines of: “Is now a good time to lock in a rate?”

While we’d love to be able to give you a definitive answer on this, the fact of the matter is that it depends on your individual circumstances, preferences and home loan.

Let’s quickly run you through a few important considerations below.

What will the RBA do?

The first factor to consider is that these cuts are being made out-of-step with the RBA.

That’s because the RBA hasn’t changed the cash rate since it was moved to 1.50% in August 2016.

However, speculation of a near-future cut to the cash rate has ramped up, with the RBA’s April meeting minutes revealing there was an explicit discussion of what it would take to make a cut.

Some economists, including AMP’s Shane Oliver and NAB’s Ivan Colhoun, predict the RBA will cut the official cash rate twice to 1% before the year’s end.

Furthermore, the RBA will likely come under more pressure to cut interest rates at their next meeting after inflation fell further below its target band, the ABC reported this week.

With all that said, nothing is certain. It wasn’t too long ago that most pundits were predicting that the RBA was going to move the cash rate upwards rather than downwards.

The pros and cons

Locking in a fixed home loan means that it doesn’t matter whether or not the official rate goes up or down, you won’t be affected.

It can give you a sense of clarity and certainty, and as such, can help you budget and plan ahead for up to the next five years.

You might prefer a fixed home loan rate if you:

– are comfortable with the interest rate offers being currently spruiked by lenders and won’t suffer from FOMO (fear of missing out) if rates drop further

– prefer to accurately plan your finances in the short and mid-term

– are concerned that you would be unable to make your repayments if rates were to rise.

However, you might prefer not to lock in a rate if you:

– are confident interest rates will continue to fall over time

– don’t mind having some unpredictability in your financial planning

– prefer to go with market rates.

Give us a call

If you’re still unsure on what’s the best option for you, or you’d like us to run you through some of the home loan rates currently on the market, then give us a call.

As we touched upon earlier, lenders have dropped rates on more than 500 fixed rate home loan products so far this year, so the market is constantly shifting.

We’d be happy to look at your current home loan and run you through how it compares to some of the other products on the market.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Customers set to lose out as Big 4 Banks profit, yet again

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Once again the Big 4 Banks have escaped major punishment and gotten exactly what they wanted: adding a multi-thousand-dollar tax on borrowing that’ll hit consumers and brokers hardest.

By now you might have seen some of the Royal Commission recommendations in their final report.

All in all, the banks got off with a very light rap on the knuckles – as indicated by all four banks having their best day in months on the ASX.

On the other hand, the existing business model for 20,000 mortgage brokers – most of whom run businesses just like ours – is at risk.

That’s because one recommendation made by the Honourable Kenneth Madison Hayne AC QC in the final report is to ban trail commissions on all new loans by July 1st 2020.

It’s then proposed that over the following two to three years, all other commissions be phased out, with mortgage brokers shifting to a consumer-pays model whereby borrowers foot the bill.

This is exactly what the banks want.

Because if implemented, the banning of mortgage broker commissions will strengthen the profits and position of the major banks and reduce lender competition substantially.

What this will save the banks

According to a report on ABC news, Credit Suisse says this move will collectively save the banks a whopping $1.8 billion over five years.

That’s a staggering amount.

Destroying the viability of the mortgage broker channel would immediately reduce competition and drive customers back into the banks with the largest branch networks.

With less competition, the banks will likely increase their rates.

MFAA CEO Mike Felton says these recommendations do not represent a good outcome for consumers.

“These policy recommendations are effectively a new multi-thousand-dollar tax on borrowing. They will put the broker channel at severe risk, damaging competition and access to credit and entrench bank power,” Mr Felton says.

“I fail to see how decimating the broker channel, leaving Australians with a handful of lenders to choose from, is good for competition, or good for customers. We are critical to the health of Australia’s mortgage lending market.”

The fallout

At this stage it remains unclear whether the Final Report is recommending a consumer fee-for-service or the so-called ‘Netherlands’ model.

“If the recommendation is a broker only consumer fee-for-service, that will mean brokers and smaller lenders will no longer be able to compete on a level playing field with the big banks with major branch networks,” Mr Felton explains.

“We know from recent, independent research that 96.5% of customers are not willing to make a payment to a broker of $2,000 and most are unwilling to pay anything at all.”

Meanwhile Peter White, managing director of the Finance Brokers Association of Australia (FBAA), says brokers should never have found themselves in the firing line.

“This royal commission is about the greed of the big banks and insurance companies, and so it should be because their behaviour has been appalling,” he said.

It’s not just the mortgage broking industry that’s been left dumbfounded by the recommendation. Here’s what Financial economist and Australian Financial Review contributing editor Christopher Joye had to say:

“The biggest winners from the royal commission are demonstrably the big banks while the largest losers are Australia’s mortgage brokers. Indeed, the top end of town have done an amazing job convincing everyone that brokers should be made the ‘fall guys’ for their own deeds, surreptitiously fattening their profits, despite no evidence of pervasive misconduct,” Mr Joye said.

What next?

For the time being, the recommendations remain just that: recommendations.

They’re not set in stone. Not yet.

Because while the Coalition and Labor have both said they’ll take action on all 76 recommendations in the report, there is an election coming up.

Enough noise made now could result in one of the two major political parties sitting up and taking notice.

That means there’s still time to let your local MP know that you’re happy with the way the system is and that you don’t want the banks transferring the costs of a mortgage broker onto customers.

If you’d like any further information on this issue, please don’t hesitate to get in touch.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

APRA to remove restrictions on interest-only home loans

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Here’s some good news to kick off 2019: APRA is removing its restrictions on interest-only residential mortgage lending from January 1.

The restrictions were put in place as a temporary measure by the Australian Prudential Regulation Authority (APRA) back in March 2017 to encourage lenders to adopt sound lending practices.

So why are they being removed now?

APRA’s announcement comes just weeks after CoreLogic figures showed Australia’s housing market recorded its weakest conditions since the Global Financial Crisis (GFC).

National dwelling values slipped by 0.7% over the month, led by Sydney where the drop was double the national average.

As such, many pundits believe the restrictions are being lifted to prevent the housing market from sinking further.

APRA, however, is claiming it’s simply a case of ‘mission accomplished’.

It says the restrictions have already led to a marked reduction in interest-only lending, which is now significantly below the target of 30% of all home loans that lenders issue.

Is the restriction removed for all lenders?

Most, but not all.

Earlier this year APRA announced it would remove its 10% restriction on investor loan growth for lenders who could prove they had strong lending standards.

Lenders who have passed this test will also no longer face restrictions on interest-only home loans.

But for lenders that haven’t yet proven the strength of their lending standards, the restrictions will remain in place until they do so.

“APRA’s lending benchmarks on investor and interest-only lending were always intended to be temporary,” says APRA Chairman Wayne Byres.

“Both have now served their purpose of moderating higher risk lending and supporting a gradual strengthening of lending standards across the industry over a number of years.”

What does this mean for you?

With the restrictions lifted, it should now be easier for borrowers to secure an interest-only loan from January 1.

If that sounds like something you’d be interested in, give us a call. We’d love to help out.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Banks’ unclear pricing costing frustrated borrowers thousands

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Borrowers who don’t shop around due to the banks’ unclear pricing tactics are losing out on an average of $850 a year, an ACCC report has found.

Get a load of this: there’s this tactic that the big four banks (ANZ, CBA, NAB and Westpac) use that makes it “difficult” and “frustrating” for borrowers to discover their best home loan offer.

The tactic is called discretionary pricing, and the Australian Competition and Consumer Commission (ACCC) has just released a scathing report on it.

So what is discretionary pricing?

The banks don’t really advertise their best home loan deals. But there are two kinds of discounts that they do offer.

The first is their “advertised discounts”, which are generally published on their website and relatively easy for borrowers to discover.

The second is “discretionary discounts”, which are much harder to find.

Discretionary discounts are offered on a case-by-case basis to individual borrowers, usually after the lender has assessed their application.

However, the criteria for discretionary discounts is generally not disclosed to borrowers.

So what’s the problem?

Basically, the banks are intentionally making it pretty damn hard and time-consuming for borrowers to obtain accurate lowest interest rate offers from multiple lenders.

In doing so, they’re hoping you’ll just get too frustrated and put the whole ‘searching around for a better deal’ thing in the too-hard-basket.

The ACCC says that’s how it was for 70% of recent borrowers from one bank – they obtained just one quote before taking out their residential mortgage.

“The lack of transparency in discretionary discounts makes it unnecessarily difficult and more costly for borrowers to discover the best price offers,” says the ACCC.

“This adversely impacts borrowers’ willingness to shop around, either for a new residential mortgage or when they are contemplating switching their existing residential mortgage to another lender. The unnecessarily high cost that prospective borrowers incur to discover price information from lenders causes inefficiency.”

How effective is this tactic?

Extremely so.

The rate of borrowers switching lenders remained extremely low last financial year.

In fact, less than 4% of borrowers with variable rate residential mortgages with the top five banks refinanced to another lender, says the ACCC.

That’s just 1 in every 25 mortgages.

(It’s also worth noting that only 11% of people got a better home loan deal from their current bank by either asking for it or being offered it.)

“The big four banks profit from the suppression of borrower incentives to shop around and lack strong incentives to make prices more transparent,” says the ACCC.

How much are these opaque tactics costing some borrowers?

In two words: A lot.

The ACCC believes an existing borrower with an average-sized residential mortgage who negotiates to pay the same interest rate as the average new borrower could initially save up to $850 a year in interest.

“This could add up to tens of thousands of dollars over the full term of their residential mortgage in net present value terms,” the ACCC adds.

So will the banks stop doing it?

Unlikely. Well, anytime soon that is. Here’s what the ACCC say about it:

“At least one Inquiry Bank appears to be aware of borrower frustration with discretionary pricing. There is little evidence of any Inquiry Bank responding to that frustration by moving away from the practice,” the ACCC says.

“More generally, the Inquiry Banks, particularly the big four banks, lack a strong incentive to reduce the cost that prospective borrowers incur to discover price information because they profit from the suppression of borrowers’ incentives to shop around.”

So what can I do about it then?

That’s the easy part. Get in touch with us to discuss your refinancing and/or renegotiating options.

By teaming up with us, not only can you save yourself the headache of having to research what each lender’s best available discount is, we will happily negotiate for it on your behalf.

So if you’re interested in potentially cutting down the amount of interest you pay each year, give us a call today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.