By tracking activity across Lendi’s panel of more than 40 Australian banks and lenders, the Lendi Home Loan Report (LHLR) analyses trends within the Australian home loan market.
Analysis of owner occupier loans settled on the Lendi platform over the six months to end June shows the median interest rate charged by the big four banks was 8 basis points (bps) higher than non big four lenders at the start of 2020 and peaked at 12bps for loans settled in March.
After two RBA cuts, the local onset of COVID-19 and fierce competition in the home loan market, the gap between the median interest rates closed for loans settled in April when the big four banks were settling loans with slightly more competitive interest rates than the smaller lenders. Since then, we’ve seen a return to the status quo and big bank interest rates sit above those charged by non big four lenders.
For loans settled over the first six months of 2020, the median interest rate charged by both the big four and other lenders has come down by 35 bps.
|Settlement month||Big 4 median rate||Other lenders median rate||Difference in median rates|
David Hyman, Lendi co-founder and CEO, comments, “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.”
The big four lenders’ popularity grew with the onset of COVID-19 and the introduction of highly competitive fixed rates but has tapered off since.
Hyman comments, “Thirty-eight and 37 per cent of our loans were settled with the big four in May and June respectively however loan submissions over the last two months indicate that the share of settlements going to the big banks will be reduced in coming months.
“The swing towards the big four was even more pronounced among refinancing owner occupiers as they sought out low fixed rates and cash back offers however this too appears to be normalising.”
The big four banks continue to have significantly longer loan processing wait times for customers. During the first half of 2020, the average time* from loan submission to settlement was 36 days on refinance applications with non big four lenders whereas it was 54 days with the big four banks.
Lendi data shows owner occupiers paying were able to reduce their interest rates by an average of 96 bps by refinancing during the first half of 2020. On an average loan size of $407,000 this represents an annual saving of $2,295.
Analysis of refinanced loans over the last six months shows discharge times can take between five and 25 days but lenders take an average of 16 business days to discharge a loan before a customer can refinance. Therefore on average, owner occupiers are each forgoing $125.75 in interest repayment savings** while waiting for their discharge request to be processed by their outgoing lender.
The latest ABS data shows 21,473 owner occupier loans were refinanced to a new lender in May 2020. Based on each of these refinancers forgoing $125.75 in savings on repayments while waiting for their loan to be discharged, $2,700,303.29 in interest savings were forgone by these households in May alone.
Hyman continues, “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.
“During the first five months of this year, more than $10 million was left on the table by owner occupiers during the discharge process.”
Lendi data shows that an increasing number of borrowers were already embracing online home loan processing before the pandemic took hold locally. To be expected, social distancing accelerated this uptake as more lenders modified their policies and customers changed their behaviour.
Over the first quarter of 2020, Lendi saw a 59 per cent increase in borrowers settling loans via the platform when compared to the first three months of 2019.
Between April and end June, this increase was more pronounced and Lendi saw a 66 per cent increase in the volume of loans settled on its platform when compared to the same period last year.
Hyman concludes, “Refinance customers have traditionally been more comfortable with digital home loan processes but social distancing measures have brought more new purchasers into the fold.”
The LHLR 1H 2020 reflects on homeowner data captured on the lendi.com.au platform between 1 January and 30 June 2020. The sample analysed consisted of more than 2,900 owner occupier, P&I, loans settled during the six month period. *All days including weekends. **Forgone interest savings calculated as 16 business days/20 days including weekends x daily repayment saving of $6.29
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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.
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