Customers at the big four banks were hit with a $70,000 “loyalty tax” by rising interest rates, the research found

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Australian homeowners are being lavished with an extra $70,000 over the life of their loan for sticking with the Big Four banks and not refinancing, new research has found.

It also showed that the big four banks raked in $4.5 billion each year as a result of the “loyalty tax” as the Reserve Bank of Australia’s (RBA) outsized rate hikes are passed on to existing customers.

The RBA has hiked interest rates to 1.35 percent since May from a record low of 0.1 percent.

Big banks are offering lower rates to attract new customers, mortgage broker Lendi’s study showed, while current homeowners are being crushed by rate hikes but could make huge savings by switching lenders.

The data from Lendi showed that existing customers at the big banks are thrown an additional 0.91 percent on interest compared to the offers for new customers.

That means customers at a major bank pay a 0.91 percent higher interest rate — and spend an additional $70,000 over the life of a $500,000 loan.

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Overall, the entire banking industry charges existing customers 0.86 percent higher interest rates than new customers.

On Friday, ANZ Bank announced it would cut standard variable rates for refinancing new customers at the big bank by 0.1 to 0.5 percent, but passed on July’s 0.5 percent increase to existing customers.

Lendi chief executive David Hyman said that if customers exit the special fixed rates, most would not return to the best rate available.

Instead, he advised customers to call their banks and ask for the same offers as new customers.

Record refinancing

But a record 332,000 Australians refinanced their properties in Queensland, New South Wales and Victoria in financial year 2021/22, up 29 per cent over the previous 12-month period, according to the latest analysis from digital processing provider Pexa Insights .

Victoria saw the highest volume of refinancing at 131,000, up 23.7 per cent year-on-year, followed by NSW at 127,600, up 25.8 per cent year-on-year.

QLD experienced the highest growth in refinancing at 73,000, up 49.8 percent last fiscal year.

All three eastern states each recorded over 150,000 new home loans, with QLD again leading the way with 160,000 completed home loans last fiscal year.

More than 472,300 new home loans were originated in the eastern states, with Victoria reporting the highest growth in both new home loans, with 157,660 loans, up 10.4 percent year-on-year.

Mike Gill, head of research at Pexa Insights, Mike Gill said Australians initially took advantage of record-low interest rates to refinance.

“There is now a clear correlation between the high numbers we have seen throughout FY21/22 and the Reserve Bank of Australia’s determination to raise interest rates twice before the end of the FY,” he said.

“The record level of new loans coincides with the strong buying and selling activity seen in the first half of fiscal 2022, particularly in Queensland, which has seen a state real estate boom in home buying and selling.

The race to attract new customers is “hotly contested” between big and non-big banks for new loans in all three eastern states, he added.

“However, non-big banks saw higher profit/loss numbers for refinancing in the same regions,” he said.

“Strong competition in the credit market can only lead to positive outcomes for consumers.”

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