Why millions of home owners are missing out

Why millions of home owners are missing out

For every 100 Australians with a gripe about their financial institution, just five will actually do something about it and make the switch to a better option, new research shows.

A survey of 5000 consumers found that a vast majority of Australians are ignoring the loud calls from Government and industry to switch financial institutions to get a better deal, with just 5 percent of respondents having switched banks over the past year.

This lack of action can be partially attributed to Australians being increasingly time-poor and prioritising other tasks, but also to Aussies feeling emotionally invested with their bank, often having multiple products with the one institution.

But in recent months there’s been no shortage of anger from consumers as the gap between the Reserve Bank’s official cash rate and average interest rates on home loans and credit cards widens.

Damian Smith, chief executive of RateCity, said if that anger isn’t channelled into action, there will be no impact on how the banks behave.

“Politicians bashing the banks, commentators scolding them, tweets lambasting them – these are all, no doubt, irritating to the banks. But they’re not going to change their behaviour.

“The only thing that will change them is customers leaving – if enough variable rate home loan customers leave, then the additional revenue from rate rises will be offset, and I can promise you the banks will change tack,” he said.

Recent home loan rate rises alone aren’t the reason the switch – they add a relatively small amount to each monthly repayment. For instance, a rate increase of 10 basis points to 7.10 percent on a $300,000 mortgage would cost around $20 per month, or about $0.65 per day.

The real reason to compare and switch home loans or credit cards, said Smith, is the absolute level of rates from the big four and the difference with the market.

“The big four now have an average standard variable rate of over 7.3 percent. Even with relatively common discounts of 0.5 percent, that’s still over 6.8 percent for most borrowers. At the moment there are maybe half a dozen loans with variable rates below 6.3 percent. On a $300,000 mortgage, moving from 6.8 percent to 6.3 percent will save you nearly $100 per month, or just over $1100 per year. Moving from 7.3 percent to 6.3 percent would see a saving of $190 per month or nearly $2300 per year.

“So my advice to people who are genuinely, and understandably, angry about how the big four are moving on rates is this: unless you show that you’re ready to move to a different lender, with more competitive rates, be prepared for ongoing rate rises,” he said.

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Learn more about home loans

What is a construction loan?

A construction loan is loan taken out for the purpose of building or substantially renovating a residential property. Under this type of loan, the funds are released in stages when certain milestones in the construction process are reached. Once the building is complete, the loan will revert to a standard principal and interest mortgage.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

What factors does Real Time Ratings consider?

Real Time RatingsTM uses a range of information to provide personalised results:

  • Your loan amount
  • Your borrowing status (whether you are an owner-occupier or an investor)
  • Your loan-to-value ratio (LVR)
  • Your personal preferences (such as whether you want an offset account or to be able to make extra repayments)
  • Product information (such as a loan’s interest rate, fees and LVR requirements)
  • Market changes (such as when new loans come on to the market)

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

Does Real Time Ratings' work for people who already have a home loan?

Yes. If you already have a mortgage you can use Real Time RatingsTM to compare your loan against the rest of the market. And if your rate changes, you can come back and check whether your loan is still competitive. If it isn’t, you’ll get the ammunition you need to negotiate a rate cut with your lender, or the resources to help you switch to a better lender.

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

Why should you trust Real Time Ratings?

Real Time Ratings™ was conceived by a team of data experts who have been analysing trends and behaviour in the home loan market for more than a decade. It was designed purely to meet the evolving needs of home loan customers who wish to merge low cost with flexible features quickly. We believe it fills a glaring gap in the market by frequently re-rating loan products based on the changes lenders make daily.

Real Time Ratings™ is a new idea and will change over time to match the frequently-evolving demands of the market. Some things won’t change though – it will always rate all relevent products in our database and will not be influenced by advertising.

If you have any feedback about Real Time Ratings™, please get in touch.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender. 

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.

How personalised is my rating?

Real Time Ratings produces instant scores for loan products and updates them based what you tell us about what you’re looking for in a loan. In that sense, we believe the ratings are as close as you get to personalised; the more you tell us, the more we customise to ratings to your needs. Some borrowers value flexibility, while others want the lowest cost loan. Your preferences will be reflected in the rating. 

We also take a shorter term, more realistic view of how long borrowers hold onto their loan, which gives you a better idea about the true borrowing costs. We take your loan details and calculate how much each of the relevent loans would cost you on average each month over the next five years. We assess the overall flexibility of each loan and give you an easy indication of which ones are likely to adjust to your needs over time.