Bank backlash as borrowers seek cheaper options

By Terry Ryder, 15th November 2010

Mortgage brokers have been “inundated” with inquiries from borrowers about refinancing their mortgages following the recent interest rate announcements of the major banks.

Phil Naylor, CEO of the Mortgage & Finance Association of Australia (MFAA), says the association’s 12,500 accredited mortgage brokers report rising consumer sentiment against the lenders who lifted interest rate higher than the Reserve Bank increase.

“Borrowers are looking for ways to offset rising interest rates and are shopping around for a better home loan deal in this environment of interest rate uncertainty,” he says.

Currently, 40% of consumers use the services of mortgage brokers but the MFAA believes this figure is likely to rise in the current environment.

Home loan comparison website HelpMeChoose.com.au says it has experienced “a phenomenal jump” in overall enquiries, particularly those from borrowers interested in refinancing or fixing their interest rates.

The number of consumers requesting a home loan comparison increased 335% compared with a week earlier. The number of unique website visitors overall increased 194%. Areas seeing the most noticeable change in activity are “refinance an existing home” and “lowest possible rate”.

Chief Operating Officer of Help Me Choose, Justin Hanka, says the lift in website volume began almost immediately after the Reserve Bank’s Melbourne Cup day decision. “We rarely see such a quick response by consumers after a cash rate decision becomes public,” he says.

Mortgage Choice has re-released its 2010 Refinancers Survey results in response to a significant rise in home loan refinancing enquiries. The mortgage broker says its customer service centre is presently receiving double the number of borrower requests to talk with a mortgage broker. Many are from potential re-financers.

Of particular interest are the statistics around exit fees, which showed 26% of respondents delayed their refinance due to charges they would have incurred by doing so earlier. Overall, 46% did not pay any exit fees upon refinancing.

68% saw their interest rate drop upon doing so. Of these, almost one quarter (23%) were saving over $300 per month while 88% were saving more than $50 per month. The main motivation to refinance was to switch to a cheaper loan, for 24% of respondents, followed by the need to consolidate debts, for 11%. 

Mortgage Choice spokesperson Kristy Sheppard says there’s “a lot of misplaced fear” among consumers about refinancing. “Depending on the loan, lender and length of time into the loan, a large portion of people who refinance don’t pay any fees to exit their contract,” she says. “It can be quite a straightforward operation. Over four in every five of our survey respondents say refinancing was either a very easy or relatively easy process.”