Those with mortgages are bank-hopping at record rates – but not necessarily to get lower interest rates.
Loan Market mortgage broker Bruce Patten said banks are attracting new customers by offering them cash contributions of around $5000.
People fixing their mortgages for shorter terms or opting for floating rates have also made it easier for them to switch banks than if they had different portions of their loans coming up for renewal several months, if not years, apart.
More than 3500 borrowers switched $2.5 billion of mortgage debt between loan providers in June.
While there has been a lot of bank switching over the past year, this was the highest monthly amount since Reserve Bank records began in 2017.
Cotality New Zealand chief property economist Kelvin Davidson said: “With nearly 14% of mortgages on floating rates and another 39% fixed and due to roll off by the end of 2025, a large number of borrowers are in a position to switch lenders without large break fees.
“This dynamic may continue to support elevated levels of refinancing activity in the near term.”
However, with interest rates likely close to their trough in this cycle, borrowers are expected to start locking in loans at longer durations.
Patten said while cash contributions were acting as a pull factor, encouraging people to change banks, there were also notable push factors at play.
His observation was that people were increasingly unhappy with the service they received from their bank and were changing in the hope of seeing an improvement.
“People are disgruntled and financially stressed,” Patten said.
He said clients struggled to get hold of customer service staff, with banks closing branches, cutting staff and outsourcing work to countries such as India, where wages are lower than in New Zealand.
He believed the uptick in outsourcing had resulted in banks making more mistakes in loan documents.
Patten pointed to an example where a bank took its time to collate a document for a client buying a house. The client’s lawyer then discovered an error in the document and sent it back to the bank. The to-ing and fro-ing delayed settlement and ultimately cost the buyer.
Patten put the mistakes he saw down to human error, resulting from banks’ cost-cutting and failing to keep up with technological developments.
The disheartening thing, in his view, was that after people changed banks they often realised the grass wasn’t necessarily greener on the other side.
The issue is topical, as banks are pushing the Government to forge ahead with its plan to prevent them from being hit with disproportionately large penalties for making mistakes in loan documents.
A bill is currently going through Parliament to ensure the law pre-2019 aligns with that post-2019, when the courts were given discretion to impose fair penalties on lenders that don’t meet their disclosure requirements.
For breaches that occurred between 2015 and 2019, banks can be required to reimburse customers all their borrowing costs for the duration of the breach, regardless of its severity.
The Government wants to change this, worrying that the law could give rise to customers trying to get windfall gains from banks for making minor breaches.
Indeed, there is a significant class action against ANZ and ASB before the courts related to breaches from the mid-2010s.
The lawyers representing the bank customers argue lenders need to face very large penalties for breaching their disclosure obligations.
If they don’t, they won’t invest in the systems required to ensure they meet high standards.
The lawyers argue that if lenders are only required to reimburse customers for harm caused, they might simply accept the fact they will make mistakes and consider this a cost of doing business.
However, the Government makes the point that disproportionately tough penalties will drive risk aversion by banks.
Jenée Tibshraeny is the Herald’s Wellington business editor, based in the parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.