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By Brett Warren

Is this the end of loyalty tax for home loan borrowers?

The gap between the interest rates being paid by existing and new borrowers is narrowing

Existing bank customers are starting to be rewarded for their loyalty with home loan rate discounts that could save borrowers over $1,000 in the first year alone, according to new insights from Canstar.

Canstar’s analysis of Reserve Bank lenders’ Interest Rate data shows the gap between the interest rates being paid by existing customers and new customers is narrowing.

In April 2022, before the beginning of the current rate rise cycle, existing borrowers were paying an average variable rate of 2.86% while new customers were paying 2.41%  – meaning a gap of 0.45%.

By December 2022, the gap had widened to 0.51% with existing borrowers paying an average variable rate of 5.49% while new customers were paying only 4.98%.

Fast forward to the present day and the latest data for May 2023 shows the gap is just 0.37%, with existing borrowers paying an average rate of 6.03% while new customers are paying 5.66%.


Canstar’s Editor-at-Large and money expert, Effie Zahos says,

“The gap in interest rates being offered to new and existing borrowers looks to be closing as lenders shift gears.”

“The latest Lending Indicators from the Australian Bureau of Statistics shows in June there was a 18 percent fall year on year in the value of new housing loan commitments and more than $20 billion in loans were refinanced to a new lender.

With fewer new borrowers entering the market and a remarkable volume of loans being refinanced, lenders are being forced to put more effort into retaining their existing customers.

“=The good news for borrowers is existing customers may be able to negotiate discounted rates to rival some of the deals offered to new customers.

Finally, it looks as though the higher price borrowers pay for being loyal to their lender is narrowing.

Canstar’s research shows even a rate discount of 0.25 percentage points on a $500,000 loan over 30 years could lower repayments from $3,320 per month down to $3,236 – a saving of $84 per month or $1,008 in the first year.

That could be the cost of your annual car or home insurance so it’s worth chasing!”

Home loan refinancing remained high in June

It sounds like if you’ve been a loyal customer and are in a good position to refinance to a new lender then your own bank might be willing to negotiate with you to keep your business.

According to the latest data released by the Australian Bureau of Statistics (ABS),  the value of total housing loan refinancing between lenders fell 3.1 per cent but remained high at $20.2 billion in June 2023,.

Refinancing (seasonally Adjusted), Values, Australia

Mish Tan, ABS head of finance statistics, said:

“Refinancing activity has remained at record highs in recent months, as borrowers continued to switch lenders amid interest rate rises.

The value of total refinancing between lenders was 12.6 per cent higher in June compared to a year ago.”

New Loan Commitments For Housing Excluding Refinancing, Values, Australia

The value of new owner-occupier loan commitments (excluding refinancing) fell 2.8 per cent to $15.9 billion.

The value of new investor loan commitments rose 2.6 per cent to $8.7 billion, though it was 15.0 per cent lower compared to a year ago.

For first home buyers, the number of new loan commitments fell 0.8 per cent over the month to June and fell 12.2 per cent compared to a year ago.

The number of loan commitments for June (8,239) is around half the level seen in January 2021, when first home buyer lending peaked during the COVID-19 pandemic.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.
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