The Lendi Home Loan Report (LHLR) analyses trends within the Australian home loan market. By tracking activity across Lendi’s panel of more than 38 Australian banks and lenders, the report identifies changes in lender and home loan customer behaviour.
The LHLR December 2019 reflects on homeowner data captured on the lendi.com.au platform. The sample analysed for this report consisted of more than 4,350 owner occupier, P&I loans, settled between 1 January and 30 November 2019.
In the first five months of 2019, median interest rates hovered in the high three’s before the RBA’s cash rate cuts and heightened competition between lenders saw median interest rates charged on new or refinanced owner occupier, P&I, loans tumble.
While the official cash rate dropped by 75 basis points (bps) with the three RBA cuts, analysis of loans settled on the Lendi platform shows the median interest rate charged by the big four banks dropped by 57 bps from 3.79% for loans settled in May to 3.22% for those settled in November. Meanwhile, the median interest rate charged by non-big four lenders came down by 62 bps from 3.69% for loans settled in May to 3.07% in November.
Over the year, the average difference between median rates offered by the big four banks and other lenders was 14 bps however the gap blew out to 22 bps on loans settled in June. Between May and June, the big four’s median interest rate on settled loans fell by just 3 bps while the median interest rate charged by other lenders reduced by 12 bps.
Month on month, the most dramatic change in the median interest rates charged to homeowners was recorded in July when the median rate fell by 41 bps for big four lenders and 33 bps for non-big four lenders.
|Settlement month||Big 4 median rate||Other lenders median rate||Difference in median rates|
David Hyman, Lendi co-founder and managing director, comments, “Some smaller lenders took a pre-emptive approach and started trimming rates before the RBA first moved the cash rate in June. Across the board, the smaller and particularly newer online lenders have been slightly more generous, passing on more of the RBA cuts and more quickly. This, together with fall out from the Royal Commission, has boosted the image of smaller banks and their appeal to borrowers.
“It’s not only reputation, price has certainly played a role and the consistently competitive owner occupier rates offered by smaller lenders has seen their market share grow.”
Lendi data shows borrowers’ preference for non-big four lenders continues to grow steadily.
Down from 30 per cent in 2018, only 20 per cent of new and refinanced owner occupier loans settled on the Lendi platform in 2019 were with big four lenders. In the first half of 2019, 24 per cent of owner occupiers settled with a big four bank however since July, this dropped to just 17 per cent.
The big four banks started the year on a high with a 33 per cent share of the owner occupier, new and refinanced loans settled by Lendi in January. After the first two rate cuts in June and July, the big four’s share of loans declined to a low of 16 per cent in August, before climbing back to 20 per cent in October and closing out November at 17 per cent.
Refinancers are leading the charge in shifting preferences away from the big four. Down from 26 per cent in 2018, just 15 per cent of owner occupiers have refinanced with a big four lender to date this year. During the first six months of the year, 19 per cent of refinancers went with a big four bank but that has dropped to a mere 12 per cent of loans refinanced since July.
For new purchase loans, 31 per cent of owner occupiers on the Lendi platform have chosen a big four bank in 2019, compared to 40 per cent in 2018. During the first half of 2019, 34 per cent of new purchase owner occupier loans were settled with big four lenders however this has declined to 27 per cent of loans settled between July and November.
Hyman continues, “As the RBA started cutting the official cash rate and the big four came under fire for not passing on the full cuts, a wave of borrowers were already showing a preference for smaller lenders and this has only strengthened as the year rolled on.
“We expect the popularity of smaller and newer lenders to strengthen in 2020, particularly as the neobank category continues to thrive and win over consumers who’ve had enough of the big institutions.”
Across all lenders on the panel, owner occupiers who refinanced with Lendi in the first half of 2019 settled on a median rate of 3.76%, representing a 56 bps reduction in the median rate secured.
Those who refinanced between July and the end of November, settled on a median rate of 3.19%, representing an average difference in rates of 127bps and reflecting the impact of the RBA cuts and heavy discounting to attract new customers.
Hyman comments, “Owner occupiers who refinanced this year, should be sitting on a rate below 3.25% as the rate cuts have filtered through. Those who haven’t refinanced in the last 12 months are likely to be on a higher, back book rate and paying unnecessary interest.
“2019 has presented huge opportunities for borrowers to make headway in paying down their debts. The environment created by a falling cash rate and fierce competition for new loans has been quite remarkable.
“On the flipside, borrowers who haven’t refinanced or renegotiated their interest rates since the RBA started cutting rates are likely to be getting slugged by a loyalty tax.”
For the period June to the end of October, Lendi data shows the average difference between interest rates charged to loyal and new owner occupier customers was 84 bps by the big four banks and 94 bps by the non-big four*.
On a $400,000 mortgage, a loyal customer with a big four bank is likely to be paying $182 more in interest each month than a new customer. That adds up to an extra $54,571 in interest over the life of the loan (based on October’s median interest rate of 3.24% v 4.08% P&I loan, 25 year loan term).
On a $400,000 mortgage, a loyal customer with a non-big four lender is likely to be paying $202 more in interest each month than a new customer. That adds up to an extra $60,707 in interest over the life of the loan (based on October’s median interest rate of 3.09% v 4.03% P&I loan, 25 year loan term).
The home loan sample analysed was made up of more than 4,350 owner occupier P&I loans. All interest rates cited in the report are for owner occupier, P&I loans, LVR less than 80%. *Loyalty tax calculation To understand the real differential being experienced by loyal customers, Lendi looked at what borrowers are reporting as their existing P&I rate in any given month and compared this to the rates being settled on new loans in that same month by either big four or non-big four banks. The sample analysed was made up of more than 2,300 back book rates and 2,400 front book rates across the 37 lenders on the Lendi panel. For the period June to October, 25 bps was deducted from the average difference in front and back book rates to account for a lag in RBA rate cuts being passed on to the borrower.
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