Banks’ reputations have taken a battering in recent years. The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry delivered a damning assessment of financial institutions in 2019, and the big banks were instructed to adopt a new code of conduct.
With the royal commission still strong in the memories of many, one might think banks would be keen to stay in the ‘good books’ with their customers, particularly those who have remained loyal.
But based on new analysis of home loan rates, that’s not the case. With the Reserve Bank lifting interest rates for a fourth consecutive month last week, the big banks have passed on those increases to customers with existing loans.
Read: How to prepare for rising inflation and interest rates
Fair enough? You would think so, but you might change your mind if you were to discover that your bank was offering lower rates to new customers. This is what is colloquially known as the ‘loyalty tax’ – the gap between pricing on new loans and existing loans.
For those who have paid off their mortgages, this is obviously not be an issue, but there is a increasing number of older Australians retiring with a mortgage.
As reported recently in YourLifeChoices, while 65.1 per cent of those in the 55-64 age bracket owned their home outright in 2001, that figure had dropped to just 40 per cent by last year. People in that age group who had a mortgage more than doubled in the same period, from 15.5 to 35.9 per cent.
So, for many aged over 50, the banks’ so-called loyalty tax, exposed in recent data analysis done by mortgage broker Lendi, is a real issue.
Read: Bank of mum and dad putting strain on older Australians
The big banks, it seems, are profiting from the apathy of its existing customers, many of whom will remain loyal even in the face of these revelations. But for anyone who is outraged, there are savings to be had, if you are prepared to ‘pull up stumps’ and seek the greener pastures of lower interest rates offered by competitors.
Just before the latest Reserve Bank rate hike, the ANZ Bank announced it would actually reduce standard variable interest rates for new customers refinancing to ANZ by between 10 and 50 basis points. That’s in stark contrast to its lifting of ‘back book’ (existing customer) pricing by 50 basis points in response to the RBA rate rise.
Read: Big Four bank still ‘not doing the right thing by the customer’
For existing customers who might be coming off the back of a fixed rate period, it could be the perfect time to shop around. Big banks are more likely to revert customers coming off fixed rates to their standard variable rate rather than to the discount rate being offered to new customers.
The advice from Lendi chief executive David Hyman is to call the bank to secure the rates being offered to new customers.
If the big banks haven’t been swayed by a royal commission, they might just be by a phone call from you advising them you’ll be looking to take your business elsewhere.
Are you a loyal home-loan customer? How has your bank treated you? Why not share your experience and thoughts in the comments section below?
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With over 55s, the banks know they often don’t have the income they once had and even though they are paying their mortgage and have never missed a payment, when this cohort goes to refinance, they get the message that they don’t meet the new lending requirements. What is worse, they now have rejected loan application on their records.
We talked about this at a recent seniors meeting and the general feeling was leave the loan alone or use cash reserves and super to pay it out. Don’t let the banks prosper from your loyalty. They won’t respect you or do anything to help you, so don’t give them your loyalty.
Besides this, money in Super after you turn 65 or in the bank counts as an asset, but a mortgage doesn’t. Best to pay down your mortgage to a bare minimum and keep the redraw for emergencies. That way you have a convenient line of credit that Centrelink don’t count and you are paying the bank as little as possible for the line of credit.