In a recent Australian Competition and Consumer Commission (ACCC) study, a concerning trend emerged: Australians are being hit with a "loyalty tax" on their home loans, estimated to cost them billions of dollars. This happens when existing customers pay higher interest rates compared to the enticing new deals offered to attract fresh borrowers.
Here at Aussie, we understand the importance of financial well-being. That's why we're committed to helping Australians fight the loyalty tax and secure the best possible home loan deals.
The high cost of loyalty
The ACCC study revealed a significant difference in interest rates offered by the big four banks to existing and new customers. This gap can be as high as 15 basis points (bps), and in some cases, it could be even wider, which leads to additional costs over the life of your home loan.
Let's translate that into real numbers.
For existing customers, that means on a $600,0000 loan for example, your bank is charging you $60 per month more than newer customers, or $1k per year or $20k over the life of the loan.
The cost of going it alone - you don’t have to be stuck with a ‘six’
And if you are shopping around alone, without the assistance of a broker - don’t be tempted to accept the average ‘sticker’ interest rate - with most major lenders - around 6.48%. That same $600,000 loan with the help of an expert could be secured at around 5.94%, potential saving of up to $214 per month – that's a staggering $2,571 annually! Over the life of the loan that could cost you a whopping $77,138.
These figures highlight the financial burden of sticking with a single lender without regularly evaluating your options. By failing to shop around, you risk overpaying on your home loan for years to come.
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The power of non-major lenders
The recent trend of non-major lenders offering out-of-cycle rate cuts further highlights the benefits of going beyond the big four. These lenders often have a reputation for more competitive interest rates, potentially leading to significant savings for borrowers.
The data speaks for itself. Currently, a host of non-major lenders are offering rates below 6%, compared to rates that may be significantly higher with the big four. This 15-bps difference, facilitated by Aussie's access to a wider range of lenders, can translate into thousands of dollars saved over the life of your loan.
You might be interested in: Can refinancing your home loan help you save?
Why brokers are your best defence against the loyalty tax
While the big four banks prioritise attracting new customers with lower rates, Aussie Brokers work for you. Our expertise lies in securing the best possible deals from a wide range of lenders, including non-major lenders that consistently offer competitive rates.
Image of COO, Sebastian Watkins
Here's how Aussie Brokers help you escape the loyalty tax trap, as highlighted by Aussie COO Sebastian Watkins:
Market knowledge and proactive support: We stay updated on the latest interest rates and offerings from various lenders, giving you access to a broader range of options beyond the big four.
"Since May 2022, there have been 13 RBA interest rate rises. During this time, it was brokers who were by the side of customers, proactively reaching out to ensure borrowers could be rolled off onto the best possible rate, often dealing with customers who wanted to know why their lender hadn't contacted them," says Watkins.Negotiation power and access to more options: Our strong relationships with lenders allow us to negotiate on your behalf, potentially securing lower rates and more favourable loan terms.
“This proactive approach is why, as fixed rates peaked last year, we saw a 200% increase in same-lender refinances on our platform between August and February 2023. Brokers helped these customers negotiate an average of 68 basis points better on their existing loans – it wasn't their lender actively doing this for them," Watkins continues. "Our investment in technology allows us to identify customers who could benefit from a better rate, something many banks simply aren't doing."Fighting for your best interest: "We've also seen cashbacks disappear from the market, with lower rates still being offered to new customers. Throughout 2023, brokers drove up 6 in 10 refinances to better deals outside the big four banks. As a result, the spread of the loyalty tax has been driven down from 70bps to 10bps in the past 18 months, thanks in large part to the broker industry advocating for borrowers," Watkins says.
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Beyond loyalty: helping a wider range of borrowers
The value of brokers extends beyond just fighting the loyalty tax. As Watkins explains, "right now, many borrowers are already stretched thin, with the best rates going to those with lower Loan-to-Value Ratios (LVRs). Brokers can help these customers secure financing, whereas many banks simply won't."
Data shows that since the start of 2024, 38% of new purchases fall outside an 80% LVR, and 20% of those seeking refinance are in the same boat.
Local focus and commitment
This focus on customer needs extends beyond just rates. "Unlike banks that have closed over 800 branches since 2017, Aussie has opened 33 new locations and grown to over 1,300 brokers across the country," says Watkins.
"We are committed to serving local communities, and this commitment is reflected in the significant increase in market share for brokers – from 59% to 71% since the introduction of the Best Interests Duty (BID) in 2021. Customers are clearly voting with their feet."
“Brokers work for you, the borrower, providing access to a wide range of lenders and advocating for your best interests.”