The third quarterly Bill Shock Index from comparison provider Compare Club has reported that the vast majority (80 per cent) of Australians have cut back on spending to cover their bills during the three months to June.
Around 73 per cent of consumers were found to have received a bill costing more than expected in the past quarter, with 50 per cent of people avoiding eating out as a result, 43 per cent dropping spending on entertainment, and 35 per cent cutting down on saving.
The majority of property owners surveyed (68 per cent) spent a third of their income on home loans.
Despite a widespread interest in cutting costs and interest rates trailing at record lows, more than half of respondents (57 per cent) who had owned a property for more than five years had not considered refinancing.
According to Matt Gatt, Compare Club Home Loans’ general manager, a home owner with a $450,000 mortgage with 30 years left on the loan could save an average of around $3,600 annually and more than $108,000 in the mortgage’s lifetime if they reduced their interest rate by 0.8 per cent.
But the largest barrier for home owners appeared to be a fear of complexity, Compare Club reported, with a quarter saying refinancing would be too difficult. Other reasons cited included not wanting to move from a fixed rate, exit fees cancelling out benefits, satisfaction with their current loan and all of their products being in the same bank.
Those most likely to refinance were investors, with multiple properties and experience in the market (75 per cent).
“It’s the people in the know who are most willing to invest a small amount of time for a massive return,” Andrew David, chief executive of Compare Club, said.
However, first home buyers were more likely than some other more established property owners to explore refinancing.
Around 53 per cent of first home buyers (who had entered the property market within the last five years) believed they could save thousands of dollars a year by refinancing. Yet, almost the same proportion of long-term home owners (54 per cent) said it would not save them a penny.
From January to June, the average time from application submission for refinancing to settlement was 58 days, according to Compare Club. Average time from initial enquiry to settlement was 81 days – suggesting it took people around 23 days to decide they’ll refinance and compile their documents.
Banks overall were observed as tracking slower at the discharge process. Compare Club reported they used to take two weeks, but now the period can stretch out to 30 days.
“From our data, we can see that it can take mortgage-holders two to three weeks to assess their options and make the leap into refinancing their home loan. In addition, some banks can take up to three months to fully discharge an existing mortgage,” Mr Gatt said.
“It definitely pays home owners to move quickly and to get a better rate, and using the right broker can also help them navigate the market and cut their rates quicker.”
First home buyers were more likely to experience shock over bills in the June quarter (86 per cent) than people who rent (74 per cent) or home owners who have occupied the property ladder for some time (67 per cent).
Nine in 10 first home buyers are actively looking to cut costs, the index reported, with 79 per cent comparing service providers and 59 per cent making a switch. In comparison, established home owners were half as likely to switch providers, at 27 per cent.
Recent buyers were also 10 per cent more likely to cut back on going out for dinner and spending on entertainment, as well as putting off paying debt or growing their savings.
The urge to swap bill providers was especially strong for younger home owners, with those aged 25-34 being more than twice as likely to compare and switch (40 per cent) than those aged over 54 (15 per cent).
The youngest consumers, including renters, aged 18-24, had experienced the highest rates of bill shock, at 87 per cent. The overwhelming majority (92 per cent) had searched for ways to cut living costs and entertainment expenses, with around half switching to more affordable providers after searching online.
In contrast, more than half of consumers aged over 54 (54 per cent) experienced bill shock (up 8 per cent from the prior quarter), but only 12 per cent switched service providers in response.
Sarah Simpkins is the news editor across Mortgage Business and The Adviser.
Previously, she reported on banking, financial services and wealth for InvestorDaily and ifa.