At its board meeting this week, the Reserve Bank of Australia announced it will hold the cash rate at 4.35%. This follows an increase in annual inflation with data last week showing an increase to 3.8% over the year to June. This is the first increase since the December 2022 quarter, with many economists now forecasting the cash rate will remain static until a cut in February 2025.
Prospective homebuyers as well as homeowners will be watching the cash rate over the next number of months. If it goes up, this will likely increase interest rates, impacting people with a variable rate home loan. It could also reduce peoples’ borrowing capacity – whether buying a new property or refinancing.
Borrowing capacity and interest rates vary depending on the lender. This can play a part in which lender you choose to borrow through – whether to take out a new loan or refinance an existing one.
Which lenders are more popular?
In Australia we have four main banks – Commonwealth Bank, Westpac, ANZ and NAB. According to Loan Market data, over 45% of loans in the last financial year were with one of these major banks. This breakdown varies depending on the age group of the borrower.
We have found the majors were more popular among people aged under 35, taking a 50% market share. This could be because many of these borrowers are first-home buyers taking advantage of government schemes such as the First Home Guarantee. These schemes are only available through certain lenders and the majors involved in the scheme tend to have less stringent eligibility criteria.
The 50-65 year-old age group was least likely to borrow through a major with 60% choosing a different lender. This could be because they often have smaller loans, which are less appealing to a major bank, whereas a smaller lender could have better incentives.
How to choose a lender
When it comes to choosing which lender is right for you there are a couple of considerations. To begin with, understand that all lenders that are authorised deposit-taking institutions (meaning you can keep any savings with them) have the same level of cover by the government. This protects deposits of up to $250,000. So when it comes to the safety of your deposit, there isn’t a difference based on which lender you choose.
The market is also competitive, so choosing a lender because you already bank with them does not mean you will get a competitive interest rate or even the right loan for you. Instead, it is a good idea to compare your options.
Some key considerations when choosing a lender include:
Loan type: Look at the type of loan that is suited to your circumstances – do you want a fixed rate or variable? Do you want flexibility for repayments? Is an offset account right for you?
Interest rates and fees: When you know what loan type you are after, you can compare interest rates and fees to understand expected costs.
Serviceability criteria: This varies depending on the lender. For example, each lender calculates borrowing power differently depending on your circumstances. Some may require different documentation to approve a loan. The loan offering can also vary by lender depending on factors such as your profession, whether you are self-employed and the size of your loan.
What is important to you?: Lenders also vary with things such as mobile banking, branch availability or customer service.
There are hundreds of lenders in Australia, offering thousands of loan products. By comparing your options you are more likely to find a loan suited to your goals and circumstances, with a competitive interest rate and fees. The right lender for you could be different to the right lender for your neighbour. A broker can compare them on your behalf and shortlist loans that are in your best interest based on the considerations above – doing the legwork for you.
