Do banks reward loyalty?

Pacer Left, Brisbane Trail Ultra 160km Runner Right.

So what does this picture of an ultra runner, right, and his pacer on the left have to do with a bank?

This photo to me represents everything good in the human spirit. It shows absolute appreciation, respect, dedication, and gratitude to each other. The ultrarunner made it through his 160km journey over 8000m of climbing, in the beautiful and brutal Brisbane Trail Ultra, Spartan Trail World Championship Event, with his pacer helping him for 80km throughout the final part half his journey, making sure he ate, drank and looked out for him. You can see the mateship and solidarity they share with each other. These are real Australian qualities, values we cherish. The selflessness of the pacer to run 80km to help his friend is a remarkable act of service. The gratitude and respect are there in the photo to be seen.

So what has this photo and the story had to do with a bank?

A question I am regularly asked by clients is whether the bank they are with will reward them for their loyalty?

You work hard to get to your goal, sacrificing many things to put your goal of owning your dream home first, much like an ultrarunner, this takes time, 30 years for some to pay off their home, and we hope that the bank is like our pacer, helping us get to our goal along the way. We want to believe that the banks do want to help and support us and share these qualities of solidarity that we share with each other.

So back to my client’s question. My client is effectively asking is whether the bank will offer an existing customer the same rates as they would offer a new customer to the bank.

It’s an interesting question, I see so many clients showing loyalty to their existing lender, there is a perception that it’s difficult to change lenders, you have costs in moving a loan, you have direct debits on your existing account, it is really worth the trouble?

The simple answer is yes, it’s almost always worth the trouble!

I know we want to remain loyal as these are qualities that we value. However, it is not an even playing field, banks are not loyal (as a general rule) to their existing customers. It does not matter whether you have banked with a lender since you opened your first school bank account with that particular bank, and remained dedicated to them ever since, the banks will offer a new customer a larger discount on a lower balance than they do for an existing customer.

It is terrible, we want to be loyal, however, this may cost you tens of thousands of dollars chasing unrequited love and loyalty in this one-sided relationship.

It is a mortgage broker’s job to umpire for the client, and make sure both teams are playing fair. The whistle came out today when attempting to uphold my client’s loyalty to a bank today on two occasions, in both cases, I was extremely disappointed to see what the lender was offering an existing client (to effectively stay with the bank).

In the first case, the existing customer, who has a significant portfolio with the lender, in fact, their portfolio is over $5mil of debt on a $10mil property portfolio, so one would think they’d treat this client with respect, the lender offered them a discount that was 0.1% less than the discount they were willing to offer a new to bank customer taking out a new loan of $500k on a $625k purchase. This lender was a “Big 4” lender.

The second case was a “mid’ tier lender, in that case, the existing client had just moved into their investment property, so we were changing the loan from being classified as an Investment Loan to an Owner Occupied loan. The lender was advertising a rate of 1.98% for new to bank business, but for the customer who was already with that lender, they were only willing to offer them a rate of 2.39% a massive 20% difference.

My whistle was going off loud and clear and it was a shame that those strong Australian values of loyalty were not being upheld by the banks. Furthermore, it is a real shame that this is not an unusual occurrence, in fact, it’s extremely rare to find a lender who will, when asked, provide the same level of discount to an existing customer as a new bank customer.

So, when thinking, should I consider a lender other than the one I already bank with, the answer is definitely yes, a new lender will save you money!

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