The big banks insist they can’t afford to pass on the Reserve Bank’s interest rate cut, but angry mortgage holders are increasingly likely to respond by switching lenders.
An Ernst and Young report found that 66 per cent of people think there are better deals available than their present loans.
However, if lenders wanted to take advantage of people’s desire to switch, they had to simplify what are currently complicated mortgage products.
Since the Reserve Bank cut the cash rate by 25 basis points to 3.25 per cent last Tuesday, the Westpac, Commonwealth Bank and National Australia Bank cut their variable home loan rates by less than that, citing high deposit costs.
ANZ will review its lending rates on Friday.
Only four out of 13 lenders that have so far responded, have passed on the rate in full, according to financial comparison website RateCity.
A Westpac mortgage holder with a $300,000 mortgage will save $35.97 a month after it reduced its rate to 6.97 per cent.
ING Direct passed on the full 0.25 of a percentage point rate reduction, saving its customers with the same size home loan $47.89 a month.
St George followed the lead of the major banks on Monday, lowering its standard variable home loan rate by 17 basis points to 6.69 per cent (a $33.94 saving) from October 15.
The bank’s retail banking general manager Andy Fell said the bank’s cost of funding loans was not solely reliant on the RBA’s cash rate, citing the high cost of wholesale funding and the consistently high interest rates it pays for deposits.
The credibility of that excuse has been questioned, with the Reserve Bank itself saying recently that wholesale funding markets were cheaper than during the recent euro area debt crisis.
The respected Australian Economic Record also released figures last week showing Australian Banks had on average passed on 116 per cent of each rate rise and only 84 per cent of each cut.
Ernst and Young said 65 per cent of borrowers wanted to be rewarded with lower fees and better rates for being loyal, according to a representative sample of 635 Australians, conducted by Quantum Market Research.
However almost a third of those who searched for information about mortgages gave up citing choice overload and complex information.
Ernst and Young customer leader, advisory, John Rolland said banks should focus on when customers first put their mortgage feelers out, because they were initially overwhelmed by “choice overload”.
“They need to ensure the information available via all their channels is in plain English and provides real comparisons for customers, in other words it doesn’t require high levels of financial literacy to make sense of it, he said in a statement.
“This means the playing field is wide open for lenders to take advantage of consumers’ current willingness to change.
“The winners will be the ones that make things simpler, offer innovative, tailored banking solutions that better meet customer needs, take a more proactive approach to their relationships, and reward loyalty.”
