Processing lags cost refinancers millions in savings

The research revealed that refinancers looking to secure a better deal off the back of cuts to the official cash rate from the Reserve Bank and the COVID-19 crisis reduced their mortgage rates by an average of 96 bps.

According to Lendi, this equates to approximately $2,295 in annual savings for borrowers with an average loan size of $407,000.

However, the broking platform observed that refinancers could have reaped millions in additional savings if lenders processed discharge requests more efficiently, with lenders taking an average of 16 business days to process a discharge request over the six months to 30 June.

Drawing on external refinancing data from the Australian Bureau of Statistics (ABS), Lendi found that over the first five months of 2020, borrowers collectively lost over $10 million in interest savings while waiting for their discharge request to be processed.

“The general economic uncertainty brought about by COVID-19 has stimulated refinance activity to record highs as households seek to reduce their outgoings and maximise savings; however, slow processing by some lenders is deliberately delaying the flow-through of benefits to borrowers,” Lendi co-founder and CEO David Hyman observed.  

The big four banks were found to have longer turnaround times than their non-major peers.

Over the first half of 2020, the average time from loan submission to settlement for refinance applications was 54 days with the big four banks, compared with 36 days with non-majors.

Some lenders, including ANZ, NAB and Westpac have publicly acknowledged their shortcomings and have recently introduced changes to their lending processes, which have included the onboarding and relocation of staff.  

Big four widen rate gap following refinancing flurry

Lendi’s analysis also found that on average, the median interest rate offered by lenders dropped by 35 bps over the six months to 30 June.

“Competition in the home loan market has intensified in the last three months as lenders have fought it out to secure good customers from a growing refinance market and from a contracting new purchase market,” Mr Hyman added.

But according to the research, over the same period, median interest rates charged by the big four banks were 8 bps higher than rates charged by non-majors.

The interest rate gap peaked at 12 bps in March, before narrowing to just 2 bps in April following two cuts to the cash rate by the RBA in March.

However, after luring refinancers with cashback offers and low fixed rates at the height of uncertainty from the COVID-19 crisis, the interest rate gap returned to an average 8 bps by the end of June.

As a result, the big four banks have lost market share in recent months, with Lendi reporting that the major banks’ share of loan submissions fell from a peak of 46 per cent in April to 24 per cent in June.

The decline in demand for the big four was particularly evident among refinancers, with the share of refinance submissions flowing to the big four falling from a peak of 56 per cent in April to 21 per cent in June.

Demand for digital mortgages rising

According to Lendi’s analysis, demand for digital home loan solutions has accelerated in the wake of social distancing measures imposed to curb the spread of COVID-19.

The group reported a 66 per cent increase in refinancers settling loans via Lendi’s online platform when comparing the three months to 30 June 2020 with the previous corresponding period.

“Refinance customers have traditionally been more comfortable with digital home loan processes, but social distancing measures have brought more new purchasers into the fold,” Mr Hyman concluded:

[Related: Westpac to onshore jobs to improves processing lags]