The price of loyalty: Big banks costing Australians billions

With each of the four big banks having recently raised their interest rates for variable home loans by as much as .20 percent, a new study finds that customers who choose to remain loyal are costing themselves over $6 billion dollars in savings each year, just by sticking with their current mortgages instead of refinancing to a much lower rate.

The average standard variable rates offered by the big four will sit somewhere between 5.56 and 5.68 percent per annum as of next month. When you compare those numbers to some of the other lenders out there offering rates as low as 3.84, it’s easy to see how customers are able to save thousands of dollars over the term of their loan, just by switching lenders.

In some of our previous articles we have discussed how, at least according to the banks, the recent hike in interest rates can be traced back to APRA’s decision to change the way the banks are required to do business. The Australian Bankers Association then went on to assure us that the price attached to these changes would be felt by everyone involved, including shareholders and upper management, not just their customers. But with record breaking profit margins and over a billion dollars a year to be generated from the interest rate hikes alone, business is looking good for banks, prompting some of us to question just how much of the burden the banks are actually willing to bear.

A recent study prepared by the Deutsche Bank has calculated that the big four will not only recoup the expenses imposed by the changes, but will actually stand to profit from them with increases to annual earnings of up to 3 % —and for a business as big as the Commonwealth Bank—3% equates to around $274 million dollars a year, or $30,000 dollars every hour.

To make things even more interesting, the same study also indicates that more rate hikes are probably on the way, and will only serve to further bolster the already staggering combined profits of the big four to sit somewhere over $30 billion dollars per year.

There is no doubt that making banks more financially stable is a good thing for Australia, however, it’s now becoming increasingly difficult to tell if the changes to regulations are just being used as an excuse by the banks to increase their profit margins despite stating that the rate hike only went ahead because they had been left with little other choice.

Many customers stick with their banks because they believe refinancing to be too much effort; shopping around for potential lenders and comparing rates takes time, but the truth of the matter is that, these days, refinancing your mortgage can be as easy as picking up the phone and making a call that could potentially end up saving you a substantial amount of money.