Australians are being urged to consider smaller lenders as the home loan market heats up this spring, with data showing they often offer lower interest rates than the major banks.

Mortgage broker Julian Thomas says competition between lenders is tight as the property market enters its busiest period, with discounts for new and existing home owners.

Australians who haven’t checked their rate in a while or are in the market for a property will find the lowest rates outside of the big four banks, which aren’t offering market leading rates, he said.

“The [big banks] are so much more expensive to begin with,” Thomas said.

Figures from Canstar show some lenders are advertising variable rates slightly below 6 per cent right now, despite all the major banks advertising standard rates above that level.

Looking outside the big four can save borrowers thousands in interest payments, Thomas said, because smaller lenders offer better deals to take business from the big banks.

“Lenders are trying to get their hands on as much market share as they can,” he said.

However, financial advisor Dawn Thomas said that although smaller lenders often have lower rates than big banks, borrowers should consider the full breadth of services attached to a loan.

That includes mortgage offset accounts, which can come with a slightly higher interest rate, but they can be hugely advantageous for owner occupiers willing to use the accounts for their savings.

“It’s not an unsafe option but be aware of the facilities on the loan itself,” Thomas said.

Interest rates disparity

There are two main ways to use the disparity in rates between big lenders and small ones to your advantage.

For home owners already with a major bank, it’s worth contacting them and pointing out that smaller lenders are offering a better deal.

Thomas said that the big banks will often convince their retention teams to lower your existing rate, without needing to refinance your loan, particularly if you’ve been keeping up with repayments.

“Your old loan is a new loan to a new bank,” Thomas said.

“Even in this spring buying period [people refinancing a loan] can get a great deal because they’re eligible for the same discounts that a new home buyer might be.

“This period between now and Christmas is the best time … there’s lenders specials flying around everywhere.”

The latest data shows the big banks are working harder at the moment to retain borrowers, with internal refinancing up 13 per cent while external refinancing has fallen 21 per cent annually.

“Households are finding more ways to secure better deals internally,” Money.com.au’s research and data expert Peter Drennan said.

“But [they] aren’t exploring other lenders as much as they used to.”

If for whatever reason your major bank won’t lower your rate, then Thomas says you should be prepared to go elsewhere, either as a refinancer or when buying a new property.

Some Australians face anxiety when going to smaller lenders, but Thomas said that regulation is strict in Australia, meaning that companies allowed to lend are safe to do business with.

“We actually have a high amount of regulation when it comes to lending,” Thomas said.

“Smaller lenders are still going to have that government oversight.”

You may also find that the “smaller lender” you find with a lower rate than the major banks is actually owned by one of the big four.