Big savings from mutual lenders but little customer awareness: Australia Institute report

Credit unions, building societies and other mutual institutions offer significant mortgage savings, but the majority of Australians are unaware of these benefits, according to a new survey by The Australia Institute.

Credit unions also have to battle the major banks, which collectively spent $1 billion on advertising in 2011 and have just reported collective annual profits of $23 billion.

In addition, since the GFC, many borrowers have sought the security of having their mortgage with a major financial institution.

The results of the survey come as borrowers await today’s Melbourne Cup cash rate decision by the RBA. Should the RBA cut the cash rate, as is tipped, speculation will then turn to how much will be passed on to borrowers by the major banks and other lenders.

The Australian Institute survey finds that members of mutually owned banks, credit unions and building societies are estimated to save an average of 0.4 percentage points on their mortgage interest rate.

Data from Canstar reported in the survey shows that standard variable interest rates for the mutuals have been consistently lower than those of the big four banks in recent years.

The average standard variable rate (SVR) for mutuals over the period of June 2009 to August 2012 was 6.73%, which is 40 basis points lower than the average SVR of 7.13% from the big four banks.

For an average loan, this generates savings of $76,417 over the life of the loan and reduces the repayment period by three years.

There are 103 financial mutuals in Australia controlling assets worth a combined $83 billion. Australia has the third largest mutual banking sector in the world, after the United States and Canada, with mortgages and retail deposits the staple offering of the sector. The biggest of these is Credit Union Australia (CUA) with $9 billion in assets and 415,000 members, followed by Heritage Bank and Newcaste Permanent.