AFR: Loyalty tax halves as borrowers eyeball savings
The spread between the rates banks charge loyal customers and the rates they offer to lure in new customers has fallen to a new low just a week after the competition watchdog delivered its report on mortgage pricing to the Treasurer's office.
Data from online mortgage platform Lendi shows the gap between the front book (new customers) and the back book (old customers) charged by the big four banks for owner-occupiers with LVRs of less than 80 per cent has halved to 41 basis points in March from 88 in November.
Lendi's Dave Hyman doesn't want to see the ACCC's report "swept under the rug".
Lendi managing director and co-founder Dave Hyman said the shrinking of the gap as lenders dropped their rates and home loan customers became more budget-conscious in the face of the COVID-19 crisis was expected, but no reason to delay the release of the ACCC report indefinitely.
"Clearly the banks and the government have their hands full dealing with the crisis but that doesn’t mean the inquiry should just end," he said. "We think it’s really important for this process to run its course and the way banks have responded with lower rates underscores the need for it."
Demand for loans is dominated by borrowers looking to refinance unless they have sold in recent weeks and are looking to get back in the market. The level of refinancing taking place is also hurting smaller lenders.
Lendi data shows that when measured as a group lenders outside the big four have reduced the discount they are willing to offer to lure in new borrowers to 55 basis points in March from 100 in November.
Smaller lenders are typically more reliant on wholesale markets and can find them difficult to access in times of volatility. This has led lenders such as Pepper, Bluestone and Liberty Finance to tighten eligibility criteria considerably.
Following the Reserve Bank’s special meeting on March 18 the central bank cut the overnight cash rate to 0.25 per cent and established a $90 billion term funding facility allowing banks to borrow cash at three years for 0.25 per cent.
Banks acted swiftly on the announcement and were quick to begin offering some of the lowest one-, two- and three-year fixed rates ever seen, with Westpac charging 2.19 per cent across the suite of fixed term loans.
The detente between the banks and the federal government is expected to keep pressure on the banks and ensure they do not leave older customers languishing on higher rates, according to analysts at Macquarie.
"In the current environment, we see rising risks that banks will be 'encouraged' to offer existing customers more consistent rates with front-book pricing to alleviate pressure on incomes," Macquarie’s analysts said in a note to clients on April 1.
With the federal government working overtime to keep the economy ticking over and the banks sorting through hundreds of thousands of requests for payment deferrals, the plight of borrowers who are meeting their obligations but getting gouged by their bank has shifted to the back burner.
"We think it’s a really important process and would hate to see it get swept under the rug. We will be waiting patiently to see what emerges from the Treasurer’s office over the next month or so," Mr Hyman said.