Borrowers scramble to compare home loan rates

While the Reserve Bank of Australia (RBA) has hit pause on increasing the cash rate in April, after 10 consecutive rate hikes, the impact of the 350-bp increase over the past year is putting immense pressure on mortgage holders who are seeking a better rate.

With a cash rate of 3.6 per cent, home loan provider Lendi Group has reported a 95 per cent increase in Aussies calculating changes to their home loan repayments, from February 2022 to February 2023.

Lendi Group chief executive David Hyman said in this new higher-rate environment, complacency is the enemy.

“Loan repayments are typically a home owners’ biggest expense, so looking for ways to save money and tackle the increased cost of living is the best place to start,” Mr Hyman said.

Mr Hyman said over the last year, the Lendi Group had seen the major lenders quick to pass on consecutive rate rises to borrowers.

Indeed, the impact of higher interest rates has resulted in the Australian Bureau of Statistics (ABS) reporting owner-occupied refinances had hit a new record high of $13.6 billion as borrowers switch lenders in search of lower interest rates.

The Lendi Group also reported a 104 per cent increase (for the year to February 2023), in those looking at how their offset may reduce their loan interest and a 25 per cent increase in people considering the costs of lenders mortgage insurance.

“Customers were also interested in borrowing power, up 11 per cent and calculating the equity in their home loan, up 7 per cent,” Mr Hyman said.

“While we are expecting rate rises to slow or hold for the next few months, it will be some time before these come down across the board. Because of this, borrowers won’t see any immediate relief and need to act to find savings and achieve a better deal.” 

However, he added banks were “dragging their feet on savings rates”, which is tipping the scales against Australians in this tricky economic environment.

Fixed-rate loans roll off 

In addition, the central bank estimates around 800,000 ‘loan facilities’ will begin to roll off their fixed rates and change to variable rates in 2023, which is estimated to be around $350 billion in credit rolling off. 

NAB’s chief economist Alan Oster has flagged these are “big numbers” and these are people who are going to be going from rates of less than 2 per cent to variable rate loans of around 5.5–6.0 per cent — “that will hurt.”

The chief economist added that it was hard to predict how consumers will respond to this new cost burden, suggesting that ‘applied psychology’ was a key factor when it comes to understanding behaviours.

“You don’t know what’s going to happen when consumers see that they have run out of liquidity and their major asset,” Mr Oster said.

[Related: NAB fixed-rate peak to hit in June]

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Last Updated: 05 April 2023

Published: 05 April 2023