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Nearly half (48.6 per cent) of customers who feel their interest rates are much worse than the market are extremely likely to switch lenders within a year, Agile Market Intelligence research has found.
The same research also revealed a direct correlation between rate perception and customer churn across financial products, with borrowers most likely to switch in the personal lending and investment mortgage space.
Vehicle loans showed the highest rate of dissatisfaction, with 17.1 per cent of holders feeling they were receiving worse or much worse rates than the market, closely followed by investment property mortgages at 16 per cent.
Owner-occupied mortgage holders showed more moderate dissatisfaction at 13.6 per cent, with the majority (54.8 per cent) accepting their rates as in line with market norms and only 30 per cent believing they had better than market rates.
The data suggests that residential borrowers either conduct less active rate comparison than investment customers or place higher value on the stability of maintaining their primary home loan relationship rather than pursuing marginal rate improvements through refinancing, Agile Market Intelligence noted.
The data showed that rate dissatisfaction is a “dominant driver” for those switching lenders, according to Agile Market Intelligence.
Commenting on the research, Agile Market Intelligence director Michael Johnson said: “It’s really important for institutions to be competitive on price, and I think everyone knows that it’s no real surprise.
“But ultimately, what we’re seeing is there’s more and more comparison tools and brokers available to help consumers explore what options they have on the market to be able to make sure that they’ve got the best rate at all times.
“So it’s really important for the institutions to remember that inertia won’t really protect them, and ultimately when they do they’re buying time, not loyalty.”
Johnson stressed that there was both a retention risk for institutions with poor rate positioning and an acquisition opportunity for those able to communicate competitive advantages effectively.
“What we’re seeing is that a lot of consumers are actively monitoring the market and making switching decisions based on rate competitiveness, especially in times of economic uncertainty,” Johnson added.
“With the myriad of digital tools and brokers available, institutions need to make sure they’re not charging any loyalty tax to their customers.
“The challenge for institutions is that their rates might, in reality, be competitive but if there’s a perception that they feel like they’re not getting the best deal (or they have to fight hard for re-pricing), it opens the door to brokers and other comparison tools for a switch to occur.”
[Related: Brokers tip first home buyer demand to rise]