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Borrowers beat path away from big banks

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Tim Colebatch

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Australian borrowers are dumping their banks to get a better interest rate. A record 35 per cent of all housing loans written in 2011-12 saw borrowers refinance existing mortgages with a new lender, rather than buy or build new property.

Bureau of Statistics figures show all the growth in new lending to owner-occupiers in the past year was in refinancing. Every week, the banks and other lenders refinance $1 billion of existing loans at better interest rates, as borrowers freed from exit fees vote with their feet.

In the year to June, lending to refinance loans swelled by $7.3 billion or 17 per cent from a year ago, and by 30 per cent from two years ago. By contrast, lending to buy existing real estate fell by almost $1 billion, while lending for new construction rose just $24 million.

Australian borrowers are dumping their banks to get a better interest rate.

Australian borrowers are dumping their banks to get a better interest rate. Photo: Michele Mossop

Australian Prudential Regulation Authority (APRA) data shows the big four banks have been the losers. This year their market share shrank slightly as growth in their stock of home lending was far outpaced by the smaller Australian banks and wholesale lenders.

But the big four remain dominant. At June 30 they held 86 per cent of all the banks' housing loans, up from 75 per cent four years earlier, before they were allowed to swallow their two biggest rivals.

But in the first half of 2012, the smaller banks won 24 per cent of the growth in the stock of home loans. And the banks collectively saw new lending shrink, with all the growth going to non-bank lenders.

The data suggests Treasurer Wayne Swan's campaign to get unhappy borrowers to vote with their feet has been enough to make the big banks take notice.

A spokesman for Mr Swan said the figures show the government's reforms have stirred competition in banking, to the benefit of mortgage holders.

''People are taking advantage of our ban on mortgage exit fees,'' he said. ''This has put more power in the hands of Australian families: they can walk down the street to another lender if their current bank isn't looking after them.''

Victoria, New South Wales and Western Australia have been the main battlegrounds. In Victoria and WA, 37 per cent of home loans in 2011-12 were for refinancing, and in NSW and South Australia, 36 per cent.

The bureau figures report the new loans written each month, and they show all the growth this year has gone to non-bank wholesale lenders. In trend terms, between December and June, monthly lending by banks shrank by $224 million or 2 per cent, but wholesale lenders lifted lending by $69 million or 27 per cent.

Excluding refinancing, seasonally adjusted new lending rose 2 per cent in June, suggesting the Reserve Bank's interest rate cuts have injected life into the market, as intended. The growth went mostly to finance new construction, rather than existing real estate.

The APRA figures show that even though new lending fell in 2011-12, the stock of money we owe the banks in housing loans grew by $83 billion or 8 per cent. Smaller banks gained $10 billion of that, with Macquarie Bank more than doubling its lending to $3.8 billion, and the Bendigo and Adelaide Bank's lending up by $3.4 billion or 16.5 per cent.

26 comments so far

  • Is anyone really surprised by this?
    Really?
    Wonders will never cease...

    Commenter
    Noons
    Location
    Sydney
    Date and time
    August 09, 2012, 10:42AM
    • did you not know that banks after after deposits now and not lending, hence lending criteria got harder. get with the days Tim

      Commenter
      johnny1986
      Date and time
      August 09, 2012, 12:37PM
      • And what do they need those deposits for ? they dont just put them in a vault for safe keeping.

        Commenter
        Kosta
        Location
        Brighton
        Date and time
        August 09, 2012, 11:30PM
      • @Kosta the Banks are chasing deposits as currently all the majors have more lending than they do in deposits therefore they have a reliance on the wholesale funding market. That's what they want to reduce by chasing deposits - not fund new lending.
        They're all ensuring any future GFC won't hurt their cost of funds so much.

        Commenter
        Michael
        Location
        Sydney
        Date and time
        August 11, 2012, 4:50PM
    • "People are taking advantage of our ban on mortgage exit fees"

      What a load of rubbish. This rule only applies to new loans from July 1 last year. I doubt people are refinancing a loan they took out a few months earlier.

      Commenter
      No Mortgage
      Location
      Melbourne
      Date and time
      August 09, 2012, 12:52PM
      • This is the first time I've seen a comment like this in the media since the banks "abolished exit fees".

        I got stung when we sold our house after 3 years and 9 months...we had an exit fee payable if we paid it back within 4 years...

        The bank didn't abolish that one.

        I called them...gave them the chance to waive it...saying we were looking for a new place with a potential loan in excess of $600k...all I got a was a standard response.

        So now - regardless of the deal they have at the time...I will NEVER bank with them again...

        Pretty simple really.

        Commenter
        Alex
        Location
        Geelong
        Date and time
        August 09, 2012, 3:34PM
      • Actually a lot of the lenders applied this to existing borrowers as well. Many would have received updated fee schedules advising them of this.

        Commenter
        Robert
        Location
        Central Coast
        Date and time
        August 09, 2012, 4:39PM
      • Why not? One of the best deals (possibly the best deal) on the market is with an institution that only refinances and doesn't write loans on new purchases. It'd be worth your while to refinance as soon as you completed your purchase.

        Commenter
        DisDis
        Date and time
        August 09, 2012, 7:26PM
    • Even with exit fees banned, the banks and other mutals, co-op, credit unions, etc... are trying ways to recoup the amount by increasing discharge fees and other legitimate fees when you refinance to an excessive amount to cover for the abolished exit fees. Same old same old

      Commenter
      Jupiter
      Location
      Melbourne
      Date and time
      August 09, 2012, 3:15PM
      • Have you looked around, its not too hard to find loans with no entry or exit fees.
        Try uBank for one (owned by NAB even)

        Commenter
        Kosta
        Location
        Brighton
        Date and time
        August 09, 2012, 11:33PM

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