As borrowers rush to review their home loans amid rate hikes, their preferences drove more brokers to choose non-major banks in August, new data has revealed.
The results from the latest Broker Pulse survey (which was launched three years ago by Momentum Intelligence) showed that more brokers cited client preferences as their primary reason for recommending a non-major bank to their clients in August 2022.
There was a 7-percentage point increase month-on-month in the proportion of brokers citing this reason for using a non-major bank, (up from 26 per cent in July to 33 per cent in August).
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Trends remained stable among major banks with 27 per cent of brokers using them due to client preferences, unchanged since July.
The survey was conducted between 1 and 15 September 2022 and asked 221 brokers on their experiences from applications submitted throughout the month of August 2022.
The results have come at a time when research from broker groups has found that borrowers are increasingly reviewing their home loans after the Reserve Bank of Australia’s (RBA) recent 50-bp cash rate hike to 2.35 per cent, the highest interest rate since April 2015.
With the big four banks and several non-major banks passing on the rate hike to borrowers across their variable home loan products (and the RBA flagging further cash rate rises in the months ahead), Mortgage Choice data revealed that 41 per cent of borrowers switched lenders during August.
Meanwhile, Lendi data showed the effects of the “loyalty tax”, with new bank customers paying rates that were 86 bps lower than existing customers on average over June. New major bank customers paid rates that were 91 bps lower, representing the largest gap in rates since October 2021.
The latest Broker Pulse survey found that 30 per cent of brokers reported using a non-major bank due to ease of use in August, up from 26 per cent in July and 24 per cent in June.
Meanwhile, non-major banks returned as favourites, with 83 per cent of brokers saying they used one in August, compared to 77 per cent who used a major bank.
This was a reversal of the previous month’s trends, when a larger proportion of brokers used the major banks compared to non-major banks for only the second time on record.
As interest rates continue to rise, product pricing was the biggest primary driver for brokers using non-major banks in August (72 per cent) but was slightly lower than the 75 per cent in July.
On the other hand, this reason drove only 40 per cent of brokers to use a major bank (down from 44 per cent in July and 41 per cent in June), and was the second-most common determinant.
As turnaround times (time taken to reach an initial credit decision) stabilise, they were the third-most common reason for brokers using both major and non-major banks, behind product pricing and client circumstances.
Almost half of all brokers (47 per cent) used a non-major bank and only 29 per cent used a major bank for this reason.
Speaking about the latest trends, Momentum Intelligence director Michael Johnson said: “Offering competitively priced products has always been a key part of the formula for lenders. However, we’re seeing this grow in importance as we move out of our record low interest rate environment.
“Many brokers are still placing importance on turnaround times but with the market generally performing at similar levels, this is having less of a driving force on broker recommendations.
“We expect to see the importance of pricing grow over the next six months as the cash rate continues to rise further.”
To participate in next month’s Broker Pulse survey or for more information, click here.
[Related: Small bank turnarounds fastest since January 2020: Broker Pulse]
