Canny property players say that when you buy a property you are dealing with two investments – the property itself and the mortgage.
Getting both of these investments right is the key to getting the best performance out of your investment and customers ignore their loan at their peril.
At the moment, competition for properties is white hot with supply very lean and lots of buyers bidding each other up to get a foot on the property ladder.
Mortgage competition even hotter than the property market
If anything, the competition on the mortgage side is even hotter because it is a much bigger market, catering for a mass of refinancing of existing loans as well as the new owners.
With the juicy supply of ultra-cheap, three-year 0.1% loans from the Reserve Bank (RBA) to the big banks now at an end after the term finance facility topped out at $188 billion, the banks are now moving the battle from the fixed rate loans on to the more traditional floating rate loans.
It is a battle that will keep happening regardless of what is going on with the property market because the COVID-19 lockdowns have given people a lot of time to think about whether their home loan is competitive and how much money they could save by refinancing or getting a better deal from their existing lender.
Staying with an uncompetitive lender in this sort of environment comes with an expensive loyalty cost.
Customers coming off fixed loans will be shopping around again
There will also be a record swathe of customers coming off fixed loans over the next four or five years so all of the banks and other lenders are focussed on getting their loan approval systems firing as best they can and competing hard on low floating rate loans.
Australian Bureau of Statistics figures show that refinancing had a record month in July, with an amazing $17.22 billion worth of mortgages refinanced for the month.
Rates under 2% and cash back used to boost refinancing
Comparison website RateCity show that the number of variable rate mortgages under 2% increased from 28 to 46 in the past two months as the institutions used a low headline rate to tout for business.
With many existing home loan customers still paying above 3% on their loans, there are some really big refinancing savings to be had and the advent of many cash back offers of up to $5,000 from lenders has been designed to get even the most reluctant refinancer off their butt and into action.
The amount being borrowed on loans is also on the rise, with property price growth up 18.4% to the end of August – the strongest in 32 years and pushing up the level of all loans in the process.
While floating rates can obviously go up as circumstances change, with the RBA insisting that it will not look to raise the current 0.1% cash rate until 2024, there is also some fear of missing out on what will probably be the lowest home loan rates in living memory by sticking with an expensive existing loan.