COVID-19 crisis leads borrowers back to the big four banks

Borrowers displayed a clear preference for the big banks during the coronavirus pandemic, with the proportion of home loans with the four major lenders rising sharply.

New research shows 38 per cent of home loan platform Lendi’s customers chose a big four bank for their mortgage between March 1 and May 31. For the 12 months to the end of February, this figure was just 16 per cent.

The research drew on data from 12,500 loan submissions made between March and May, across 38 lenders.

The swing to the big four – ANZ, CBA, NAB and Westpac – is even more pronounced when it comes to refinancing.

Almost half (48 per cent) of all borrowers refinancing their loans across this period chose to do so with a major bank, compared to just 14 per cent of borrowers in the 12 months before the pandemic.

Lendi co-founder and managing director David Hyman said price rather than security had driven this trend.

“Banks started to fight it out on the refinance front as new lending started to contract, by offering generous cash-back incentives and record low fixed rates to win customers,” Hyman says.

“Mortgage holders looking to shore up their position and reduce their outgoings jumped on these refinance deals.”

Unsurprisingly, the surge in demand has had a flow-on effect to customer service levels, with Lendi’s research showing loan processing times have blown out at some of the bigger banks.

“In some cases, this meant borrowers missed out on securing the low rate they applied for – not a good customer outcome – due to no fault of their own,” Hyman says.

Conditions change

Although the big four proved most popular during the peak of the pandemic, mortgage brokers said the big banks had tightened up their lending policies over the past few months.

“Customers are facing a significant reduction in available credit,” said Vanessa Burgemeestre, finance consultant at Jim’s Financial Services.

“This credit squeeze is a major challenge for customers, so having finance options available from non-bank lenders, which create competition, is crucial.”

Hyman also urges borrowers to continue considering smaller and non-banks. “They may not have the same marketing budget as the big banks, but many offer very competitive fixed and variable rates and exceptional customer service.”

Lendi’s latest figures suggest customers are now going back to smaller and non-banks, says Hyman.

“The big four’s popularity peaked in April, when one in two borrowers chose them. Their popularity eased slightly in May but activity in June suggests a return to the norm. Figures to date for June show around four in five of our borrowers are going with a non-big four lender.”

Service and speed

While price, convenience and apathy tends to sway people’s preference for the big four, smaller lenders are often hungrier for borrowers’ business. This has a flow-on effect to customer service levels.

“Our customers tell us the personalised, mobile service and range of products offered by smaller lenders means they are more convenient than the big four,” says First National chief executive Ray Ellis.

“Smaller lenders are working hard to win customers, especially smaller ones, whereas the big banks are oriented towards high-net-worth customers.

“That said, the big four can sometimes be more responsive at approving loans than the smaller lenders.”

Ellis also notes different buyers have different preferences. “Property investors tend to choose one of the big four for their loans, with ANZ well placed. First-home buyers often opt for mortgage products from a non-bank lender.”

But preferences depend on location. Newcastle Permanent is a popular option for people in NSW, Heritage Bank is a favourite in Queensland and People’s Choice Credit Union often wins borrowers’ business in South Australia, Victoria and the Northern Territory. Bank of Us in Tasmania and Beyond Bank in Western Australia are also popular choices.

Ultimately customers want quick and responsive service and the best rate and both big and small banks need to meet this need.

Whichever path a borrower chooses, what’s critical is to get a full understanding of all the options available and the services on offer. That’s the best way to make an informed decision on a loan that genuinely suits your lifestyle and circumstances.

Domain Home Loans is a joint venture of Lendi and Domain Holdings.