Banks are slugging long-term home loan customers with much higher rates than are offered to new customers in an unsustainable bid to increase business.
Loyal customers are being charged higher rates than their newer counterparts, in some cases to the tune of hundreds of dollars each month, prompting ACCC chair Rod Sims to take action.
The head of Australia’s competition watchdog told the Australian Financial Review that discounting new customers’ mortgages was disrespectful to the thousands of loyal customers who have already taken mortgages.
The comments come only days after Mr Sims told Parliament that Australia’s banking sector is not as competitive as it should be, adding that the ACCC is in discussions with Treasury looking for ways to make the sector more competitive.
Former NAB CEO Andrew Thorburn has also reportedly criticised the practice of discounting new loans during his tenure as the bank’s head, even going so far as to push for an end to the discounts in November 2018.
But Sally Tindall, research director of comparison site RateCity, told The New Daily borrowers shouldn’t rely solely on their banks to tell them if switching could be in their best interests.
“Being a loyal home loan customer can sometimes come with a hefty price tag,” she said.
“A lot of loyal customers will be shocked to see what rates their own bank is offering new customers, compared to their own.
“While it can sometimes feel like a slap in the face, if you’re on a variable rate, you can do something about it.”
‘It’s not sustainable’
Steve Mickenbecker, chief of financial services at fellow comparison site Canstar, said “loyalty in any industry should be rewarded” and the big banks need to change their practices to remain truly competitive.
“It’s not sustainable in any industry to be charging your long-term loyal customers a higher rate than brand new customers – that’s not a sustainable customer strategy at all.”
But Mr Mickenbecker cautioned increased regulation might not be the best course of action, saying tougher regulation to stamp out discounting for new customers could make banks less likely to lend.
“I’m always loath to say the regulators should step in because then you’re going back then to a period, pre-1980s, where it was really quite difficult to get a loan,” he said.
“It was almost like the bank was doing you a favour if they gave you a loan. I don’t know that we want to go back to that era of regulation.”
Switchers can find discounts now
Both Mr Mickenbecker and Ms Tindall said borrowers who have been with their lender for several years need to evaluate if they are happy with the deal they have.
If not, the first step is to reach out to the lenders banks and try to negotiate a better rate.
But, if the banks can’t or won’t make a more competitive offer, borrowers should be prepared to switch.
“A lot of people are intimidated by the thought of switching lenders, but there are tools to help you do it easily,” Ms Tindall said.
“You can jump on a comparison site or even call a broker to help you potentially find a better deal.
“If you decide to switch, your new lender will likely go out of their way to make it as simple as possible for you.
“They want your business and will work with you to get that paper work done”
How the banks stack up
Canstar compared each of the major four banks’ “package rates” (which most existing customers will likely be on) with more competitive products offered by each.
The tables below show how much more loyal customers are paying in comparison with new borrowers.
Westpac has two lines in the table. It introduced an increased discount for package rates on July 22, meaning borrowers taking out this loan would receive a 1.29 per cent discount as opposed to the previous 0.70 per cent.