Banks are targeting new home loan customers with offers of better interest rates than they give existing customers, as well as generous cashback incentives. Broker Tom Uhlich of Boss Money looks at the latest trend.
There are things in life that go to plan. There are things that don’t. And then, there are things that completely defy all logic.
One of this logic deﬁers is the Australian property market during the pandemic. Flashback to early 2020, and the forecast for the Australian property and mortgage markets was beyond doom and gloom – armageddon was predicted. What actually happened was quite different. Australian property prices, particularly in the northern states, have skyrocketed.
A knock-on effect has been a signiﬁcant increase in demand for loans, and rising competition in the loan market. Also spurred on by the current record-low interest rates, with no improvement expected in the foreseeable future, the market is hot, and lenders are doing all they can to get a piece of the action.
The RBA has highlighted that lenders are offering new borrowers signiﬁ cant interest rate discounts compared to existing loan customers. This can be a difference of half a percentage point or higher. For example, for owner-occupiers with principal and interest loans, the average interest rate is 2.33% for new borrowers and 2.79% for existing customers. That’s a gap of 0.46 of a percentage point. For investors with interest-only loans, new borrowers are offered 2.85%, while existing customers are charged 3.44%, a gap of 0.59 of a percentage point.
Banks are also now throwing cashback ff ers out into the market to lure borrowers. Cashback amounts can range from $2,000 to a whopping $5,000 paid on settlement. It’s an astonishingly competitive environment – one that even seasoned brokers have not seen before.
A recent example was a loan settled by the Boss Money team last month. It was a loan of $778,000 reﬁnanced to an ultra-low 1.79%. In addition, the lucky owners received $4,000 in cashback. That represented a saving of $12,480 in year one and $8,480 per year ongoing! Being smart investors, these clients kept their repayments the same, which will reduce their loan term by seven years and save them over $60,000 in interest.
Over the last six months we have saved more than $5,000 per year for 93% of clients that contacted us. Cashback is also helping borrowers get out of high ﬁxed rates as they can use it to pay off their break fees.
It’s mind-boggling that lenders are looking after new clients rather than their existing customers. Shouldn’t they offer their existing clients cash incentives to keep them happy?
It will be interesting to see how this all plays out as government regulators try to slow the property market by making money more difficult to get. Will it be lower LVRs or increasing debt-to-income ratios? It’s unlikely to happen until lockdowns have ended.
Contact Boss Money on 0476 111 000 or [email protected].
Director and senior mortgage broker, Boss Money.