The average home loan customer could save up to $82,000 by switching from a major bank, according to new research from RateCity.
The comparison website calculated that a family with a $350,000 loan looking for a fully featured mortgage can save up to $82,118 by switching from a major bank to a low-rate online lender.
RateCity money editor Sally Tindall urged borrowers to give the major banks a “wake-up call” by “voting with their feet”.
“The big four banks have an incredible 75 per cent share of the home loan market. If you’re fed up with what’s coming out of the royal commission, now could be the time to switch.”
RateCity noted that the big four advertise fully featured loans for about 4.5 per cent, along with a package fee of $395 a year, while some non-major lenders are offering fully flexible loans with an interest rate of 3.49 per cent, as well as a 100 per cent offset account and no ongoing fees.
However, according to a Fitch Ratings report, borrowers may be finding it harder to refinance.
According to Fitch Ratings’ Dinkum RMBS Index, the borrower payment rate (BPR) decreased by 10 basis points to 20.7 per cent by the end of the first quarter of 2018 (1Q18), with the conditional prepayment rate (CPR) also falling, dropping by 11 basis points to 18.4 per cent.
Fitch noted that the conditional prepayment rate remained low throughout 2017 and 1Q18, the longest period the CPR has remained below 20 per cent.
The ratings agency attributed the decline in the CPR to tighter underwriting standards and macro-prudential measures imposed by the Australian Prudential Regulation Authority (APRA), which it claimed have limited access to mortgage refinancing.
“The slowing prepayment rates reflect the increased difficulties of refinancing due to a combination of tighter underwriting standards and APRA’s directive to restrict annual interest-only loan growth to 30 per cent and annual investment loan growth to 10 per cent,” Fitch noted.
Fitch also said that it expects the CPR to remain below 20 per cent throughout 2018.
Speaking to sister title Mortgage Business, director of structured finance at Fitch Ratings Australia Chris Stankovski noted that reduced access to refinancing would most impact borrowers that had a high-risk profile when they initially obtained a loan.
“The borrowers that might have more of an issue are those who obtained lending to the limits of the lending capacity a couple of years ago and are looking to refinance without getting ahead of their payments or without building additional income,” the director said.
“The marginal lender would find it more difficult to refinance their loan, and that’s why we expect [the CPR] to remain low.”
When asked if he expects the trend to continue in the longer term, Mr Stankovski noted that Fitch would observe market conditions following the conclusion of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry before making a determination.
Mr Stankovski said: “It’s difficult to determine whether refinancing rates will remain low in the long term, so we’re interested to see the recommendations from the banking royal commission later this year and the impact those recommendations have on underwriting standards.
“We think that, at the very least, these current underwriting standards will remain with the potential for additional tightening following the recommendations from the banking royal commission.”
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