Rate hikes rapidly changing borrower attitudes

More than 1,000 Australians aged 25-49 – half of whom currently hold a mortgage – were surveyed in January as part of the CUA National Mortgage Survey.

The report found 42 per cent of mortgage holders have switched lenders or considered switching in the past six months, significantly higher than the 31 per cent of mortgage holders recorded in May 2015.

“We’re seeing people shopping around much more than we were 6-12 months ago,” CUA head of product Mark Petty said.

“More borrowers are looking to smaller lenders, including credit unions, and around 42 per cent of mortgage holders had switched lenders, or thought about it, in the past six months – up from 31 per cent in May 2015,” Mr Petty said. “Of that number, nearly half cited interest rates as one of their reasons.”

However, while rates are the primary driver behind customers switching lenders, the report found an alarming 60 per cent of mortgage holders do not know the current interest rate on their home loan.

The report found 28 per cent of borrowers are “not sure” of their current home loan interest rate, while a further 32 per cent only know “approximately” what rate they are paying.

“It was surprising that only one in four borrowers could quote their home loan rate to two decimal places given the amount of money at stake,” Mr Petty said.

“For most of us, our home is our most valuable asset and our mortgage is typically our biggest weekly expense, so it is really surprising just how low the awareness is about what people are actually paying on their loan,” he said.

Interest rates are also the number one reason to consider moving from a variable to a fixed rate – three quarters said they would switch, or consider switching, to a fixed rate if they are offered a rate 0.50 per cent lower than what they are currently paying.

The survey revealed men are more likely than women to say they know the “exact” rate they are paying – just under half, compared to less than one in three women. There is also a clear link with how much borrowers earn, with those on higher incomes more likely to know their interest rate.

Despite the low awareness of the true cost of their mortgage, 60 per cent of mortgage holders believe they will be able to pay their loan off in less time than the term of their loan.

One in four survey respondents expect to pay off their loan in under 10 years, and 40 per cent estimate they will pay their loan in 10-20 years – much less than the typical home loan term of 25 to 30 years.

“Interest rates, and also fees and charges, are clearly top of [the] mind when people are shopping around for a home loan. But it seems that for the majority of home owners, they don’t pay much attention to the interest rate until the time comes that they are looking to switch,” Mr Petty said.

“It’s interesting that Australians want to pay off their home loan in the shortest possible time, but that aspiration is at odds with low awareness of the interest rate they’re paying on their home loan today,” he said.

“Home owners need to do their homework to make sure they’re getting good value for money. While interest rates are often the main focus for borrowers, it’s important to also compare fees and charges, and loan features. For instance, offset accounts or flexibility to make additional repayments can make a big difference to how quickly you pay off the loan.”

The CUA National Mortgage Survey also found:

• One third of respondents expect interest rates to increase by the middle of the year – up from one quarter who had been expecting a rate hike during 2015.
• Fewer young people are considering taking out a home loan – just 27 per cent of those aged 25-29 intend to get a mortgage in the next two years, compared to 41 per cent in 2015.
• Forty-five per cent of mortgage holders say paying off a home feels like “a part of life”, compared to just 30 per cent of non-mortgage holders.
• If they didn’t need to pay their mortgage for a year, 70 per cent of all mortgage holders say they would still put the money towards their mortgage or save the money.
• Respondents prefer to work an extra three hours a day (43 per cent) if it means they can take a year off mortgage repayments, rather than move in with their in-laws (25 per cent).

[Related: Owner-occupied rates drop 30 basis points]