This is not speculation — the ACCC confirmed it
In 2023, the Australian Competition and Consumer Commission published its Home Loan Price Inquiry — a comprehensive investigation into how banks price mortgages. The findings were stark: existing variable rate borrowers paid, on average, 0.58% more than new customers at the same lender.
This 0.58% gap is the loyalty tax. It is not a penalty you explicitly agreed to — it is a structural feature of how Australian mortgage pricing works. New customers get competitive rates because banks are competing to win their business. Existing customers pay more because banks know inertia, complexity, and the perceived hassle of switching keeps most people from leaving.
How much the loyalty tax actually costs
At 0.58% on various loan balances:
| Loan Balance | Monthly Loyalty Tax | Annual Loyalty Tax | Over 5 Years |
|---|---|---|---|
| $400,000 | ~$193 | ~$2,320 | ~$11,600 |
| $600,000 | ~$290 | ~$3,480 | ~$17,400 |
| $800,000 | ~$387 | ~$4,640 | ~$23,200 |
| $1,200,000 | ~$580 | ~$6,960 | ~$34,800 |
These figures assume the full 0.58% gap, which is the ACCC average. The gap for some borrowers — particularly those who took out loans 3–5+ years ago and have never negotiated — can be significantly wider.
Why banks do this
Understanding the mechanics helps you push back more effectively. Banks charge different rates to different customers for several reasons:
- Acquisition cost recovery — banks spend heavily to acquire new customers (broker commissions, marketing, offer incentives). They price new customer rates to win the business, knowing they can gradually recover margin as the customer becomes less likely to leave.
- Switching friction — refinancing requires effort: documentation, applications, a waiting period. Most borrowers overestimate how hard it is and underestimate how much it saves. Banks count on this.
- Risk-adjusted pricing opacity — mortgage pricing is opaque enough that most borrowers cannot easily compare their rate against what they could get elsewhere. This information asymmetry works in the bank's favour.
- Segment-level economics — banks know that only a fraction of existing customers will ever switch, so they can extract margin from the majority who do not while offering sharp rates to win new business from the minority who are shopping.
How to fight the loyalty tax
There are two effective approaches, and using a broker makes both significantly more powerful:
Option 1: Negotiate with your existing lender
Call your lender's retention team (not the standard customer service line — ask specifically for retentions or home loan specialists) and tell them you are reviewing your mortgage and have found lower rates elsewhere. A broker can do this on your behalf with market-rate data in hand.
What typically happens: lenders have "discretionary rate" authority of 0.2–0.5% to reduce rates for at-risk customers. If you signal credibly that you will leave, many lenders will offer an immediate rate reduction to retain you. This works best when you can name a specific competitor rate.
What to say (or have your broker say):
"I've been with you for [X] years and I've been reviewing my mortgage. I've found [lender name] is offering [rate]% to refinancing customers with my profile. I'd prefer to stay but not if I'm going to keep paying [current rate]%. Can you match or beat [competitor rate]% to keep my business?"
Then be quiet and wait. The silence after this question is often where the rate reduction is offered.
Option 2: Refinance to a better lender
If your lender will not match the market, or if their best offer still leaves you paying above the market rate after negotiation, refinancing is the right move. The process takes 3–5 weeks and is entirely managed by your broker — you sign paperwork and the savings start immediately on settlement.
The negotiation play: Even if you ultimately intend to refinance, going through the negotiation step first costs nothing and sometimes results in your existing lender offering a rate competitive enough to stay. Your broker handles this as a matter of course — contacting your lender on your behalf with market data, then recommending the best outcome whether that is staying or switching.
How long have you been paying the loyalty tax?
The loyalty tax accumulates from the day you stop being a new customer — typically 6–12 months after settlement. For borrowers who have held their loan for 3 or more years without reviewing their rate, the cumulative overpayment is often $15,000–$40,000+ depending on loan size.
The past cannot be recovered, but the future can be fixed today. A broker assessment costs nothing and takes 30 minutes. The saving on even a single year's avoided loyalty tax will cover every future cost associated with finding out.