Jack Han reports on how costly pride can be when comparing home loans.
March 15, 2010
In the wake of Australia’s economic recovery, major banks have reported record profits and market share growth. This has raised concerns about the direction of banking competition in the country, as many home loan borrowers fear that their smaller lenders are being pushed to the sidelines. However, some major lenders have heeded these concerns, and vow to prioritise consumer satisfaction over profits.
In their 2010 Half Year Results, the Commonwealth Bank reported a net profit of $2.91 billion for the second half of 2009, which was their best cash profit result in a decade. Westpac and ANZ both reported profits of $1.6 billion for their first quarter of 2009 (October to December), while NAB maintained a modest $1.1 billion profit for its first quarter.
Despite the good news, the major banks are still struggling to win the hearts of consumers, with a consumer survey by Choice reporting that second-tier bank customers are more satisfied with the level of service and price they receive than major bank customers.
It seems that Australians have issues with practices such as high fees, poor service, and the refusal in the past to pass on interest rate cuts to home loan borrowers in full.
Challenging this trend recently is St George, who announced that it will cut penalty fees on its transaction accounts in a bid to win back customers. As reported by the Australian Financial Review, the decision is predicted to cost the company $80 million in revenue for the 2010 financial year.
Home loan customers now face the dilemma of whether to compare their mortgages by price or reputation. While smaller lenders do not offer the same variety of products or service coverage as major banks, nation-wide consumer surveys indicate that they are competitive on interest rates and fees.
After the latest Reserve Bank decision to raise the cash rate by 25 basis points to 4 percent, we are already seeing a larger disparity between interest rates offered by top-tier lenders and small to mid-tier lenders.
For example, with a 0.5 percent interest rate difference between the cheapest overall home loans and the cheapest ones offered by major banks, borrowers on a $300,000 loan for 20 years can save $83 a month by switching to more affordable options.
Smaller lenders are often more flexible with penalty fees, such as late home loan repayments and refinancing costs due to their focus on customer service.
Compare home loans online to prove that your lender deserves your business, or otherwise find the company waiting to bend over backwards for your money.