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Big 4 banks holding out on homeowners – to the tune of $7 BILLION dollars!

The banks are back in the news once more as they benefit from rate cuts – more so than homeowners.

banks

The big four banks have kept an estimated $7 billion* from their variable rate home loan customers by not passing on the full Reserve Bank cash rate cuts since November 2011, according to finder.com.au.

When the latest interest rate cuts come into effect, the big four banks – ANZ, Commonwealth Bank, NAB and Westpac – will have each held back 0.37 percentage points of the Reserve Bank’s 2.50 percentage points of cash rate drops on average from their standard variable interest rates.

bank pig race

NAB kept more of the cash rate cuts than the other three big banks since November 2011 according to finder.com.au, with 0.46 percentage points.

It was followed by Commonwealth Bank and Westpac both keeping 0.34 percentage points while ANZ passed on the most out of the big four banks, keeping 0.33 percentage points.

However, Westpac holds the highest standard variable interest rate of the big four banks, which will be 5.70 percent from February 20.

Commonwealth Bank holds the second-highest of the big four, with a 5.65 percent standard variable rate also from February 20, while ANZ and NAB follows with 5.63 percent from February 12 and 20 respectively.

Michelle Hutchison, Money Expert for finder.com.au, said the majority of Australian mortgage holders will be impacted by the big four banks’ decisions to keep rate cuts from customers.

“The big four banks hold 84 percent of home loan market share of all banks monitored by the Australian Prudential Regulation Authority (APRA). And it’s estimated that 70 percent of all mortgage holders have a variable home loan.

“So when the big four banks hold out on passing on rate cuts, it’s going to hit most households with a mortgage.”reserve bank

The total value of all home loans financed through the big four banks is $1.1 trillion as at December 2014 (APRA data analysed)

Commonwealth Bank holds the biggest home loan share in Australia, with a home loan book worth over $354 billion including both owner-occupied and investment home loans.

For owner-occupied home loans Commonwealth Bank also holds the biggest share, worth $231 billion, while Westpac holds the biggest investment home loan book worth over $145 billion.

How much money the big 4 banks lend to home loan borrowers

Bank Owner-occupied home loans ($ billion) Investment home loans ($ billion) Total home loans ($ billion)
ANZ $143.1 $58.0 $201.1
Commonwealth Bank $231.3 $122.9 $354.1
NAB $159.2 $62.3 $221.5
Westpac $182.4 $145.8 $328.2
TOTAL $716.0 $388.9 $1,104.9

Source: finder.com.au, APRA December 2014, ordered alphabetically

“For a $300,000 home loan, borrowers could be missing out on $70 per month, $840 per year or over $25,000 over 30 years, based on the average 0.37 percentage points that the big four banks have kept from their customers.

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“The big banks are making record profits from their customers because many borrowers are not bothering to compare their home loan to other lenders. While some prefer to pay more for to bank with the one organisation, it’s a hefty cost for a little convenience.

“With ongoing variable rates soon starting from 4.23 percent, borrowers could save a lot more than 0.37 percentage points if they shop around.”

*Calculation of $7 billion was based on average of the big four banks’ total home loans financed per month since November 2011, and the difference between how much interest they earned per month based on their average standard variable rates each month and how much they should have earned if they passed on the full cuts, and then subtracting 30% as an estimate for the proportion of fixed home loans.



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Big 4 banks holding out on homeowners – to the tune of $7 BILLION dollars!' have 2 comments

  1. Avatar for Property Update

    February 11, 2015 @ 11:23 pm James

    “The big banks are making record profits from their customers because many borrowers are not bothering to compare their home loan to other lenders. While some prefer to pay more for to bank with the one organisation, it’s a hefty cost for a little convenience.

    “With ongoing variable rates soon starting from 4.23 percent, borrowers could save a lot more than 0.37 percentage points if they shop around.”

    When ever I read comment like above, I can almost always certainly smell self-serving hidden agenda. Instead of hinting a
    behaviour of indifference or laziness on the borrowers, why not just be the kind, caring, generous Aussie hero here and spill the
    beans telling the entire world which lender and which loan product is the best deal without any hidden gotchas?

    The reality is no one “prefers” hefty cost for little convenience. Similarly, it’s not a matter of people “bothering” to compare their
    home loan to other lenders. There are many of us who are time poor simply to make ends meet and so many out there spruiking
    their service for best loan deals are in reality far from providing the right product or advice and the battlers are way too often being
    taken advantage of. Even the self proclaim expert will almost aways have disclaimer to protect their back just in case something
    goes wrong.

    Reply

    • Avatar for Property Update

      February 12, 2015 @ 7:11 am Michael Yardney

      James
      You’re right – it’s a complex maze for most borrowers. That’s why I recommend borrowers use a proficient mortgage broker to level the playing field

      Reply


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