“Low interest rates and intense competition from specialist providers spell hot deals for borrowers and a shrinking market share for the majors,” says Mozo’s Kirsty Lamont. Source: News Limited

Out of 390 home loans from 81 providers analysed by comparison website Mozo.com.au, 86 per cent of the best-value loans on the market right now are from credit unions, online and small bank lenders.

Someone on a typical $300,000 home loan from one of the big four could save about $2000 a year by switching to what Mozo named the best value variable home loan, offered by Loans.com.au.

Mozo director Kirsty Lamont said online lenders were able to offer interest rate discounts of up to 1 per cent due to their lean operating models.

“They don’t have branch networks, they don’t have the big customer support teams the banks need to have, so their costs are lower and they pass that on in the form of lower rates,” she said.

Data from the Australian Prudential Regulation Authority shows the big four have lost more than 1 per cent share of the $1.3 trillion home loan market to smaller lenders over the past two years.

That equates to $143 billion, or $18 million worth of loans every day.

“A lot of Australians aren’t aware that online lenders exist and that they offer such great value home loans, but more borrowers are getting savvy to these deals,” she said.

Ms Lamont said the most surprising thing about the findings was “just how uncompetitive the big four have become”.

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“You can get a full-featured home loan with all the bells and whistles from an online lender at well below the rates offered by the big four. They just don’t rate a mention.”

Among the online lenders, the best rate available is offered by Homestar at 3.98 per cent. Based on a 25-year, $300,000 loan with an 80 per cent loan-to-value ratio, annual repayments will be $18,960.

The big four average rate is 4.92 per cent ($20,880 per annum). Out of mutual building societies, Newcastle Permanent offers the best rate at 4.09 per cent ($19,176 per annum), while Bankmecu is the cheapest small bank lender with an interest rate of 4.10 per cent ($19,200 per annum).

Ms Lamont recommends credit unions and mutuals as ideal for borrowers who “ want to be treated like a real customer not a number and be part of an organisation that gives back to members not just shareholders”.

Online lenders are ideal for “online natives who want the sharpest rate and don’t mind a bit of DIY to get it”, while small bank lenders are better for those looking for the security of borrowing from a bank but a “more personal level of service and competitive rates”.

The big four were best for more complicated loans, large loan amounts or for existing customers who want to get all their banking in one place, she said.