Two-thirds of borrowers open to switching lenders for better deal: Ernst & Young

Two-thirds of borrowers who have a mortgage with a bank believe they could be getting a better mortgage deal by refinancing with a new lender, according to research by Ernst & Young.

However, many give up at the early stages of the mortgage application process or turn to a mortgage broker for help.

These were the key findings of a survey of 635 respondents across the  big four banks as well as regional banks carried out as part of Ernst & Young’s customer experience series.

Research by Ratecity.com.au finds that three of the four lenders to have passed on the full October rate cut are small lenders led by bankmecu, which is offering a standard variable rate of 5.49% – 108 basis points lower than the lowest standard variable rate offered of the big four (NAB, 6.58%).

According to the Ernst & Young survey, when applying for a mortgage, a third of customers give up at the "information gathering" stage because of "too much choice" and a lack of simple and clear information.

It also found that 60% of people who initiated the mortgage application process ended up finalising it and getting a mortgage, but the remaining 40% dropped off along the way.

“It sounds simple enough, but banks need to focus their efforts on that initial step – when customers first put their mortgage feelers out. They need to ensure the information available via all their channels is in plain English and provides real comparisons for customers, in other words it doesn’t require high levels of financial literacy to make sense of it,” says Ernst & Young’s John Rolland

“We know Australians are time poor. They feel a lack of control over their lives and, as such, don’t like complex decision-making. This means they default to the simplest tools that help them in their everyday decisions.

“While choice is obviously a good thing for consumers, there is such a thing as ‘choice overload’ – even in banking when competition is a good thing.

“It’s a sign of our times that people looking for a mortgage are feeling overwhelmed by the vast array of mortgage products as well as the number of mortgage lenders, and don’t know where to start."

Another finding was that 80% of customers who embarked on the mortgage or switching process started without involving a broker or third party – significantly below the 42% share of the mortgage distribution market that brokers are estimated to hold.

This suggests that many borrowers choose to engage a mortgage broker after finding the application process to difficult or frustrating to do on their own.