Mortgage war intensifies

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By Leith van Onselen

The Australian Finance Group (AFG) has released its Competition Index for March 2013, which revealed that major lenders continue to dominate mortgage lending, despite some recent market share gains by non-major lenders (see below tables).

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According to AFG:

 “Competition has been partly restored in the past two years, with non-major lenders being quite agile in targeting specific products and markets.  But they are finding it a struggle to challenge the overall dominance of the major lenders.  Collectively they still only account for around a quarter of all new home loans each month”…

Macquarie Bank has emerged as the most successful non-major lender if the home loan space over the past year, growing from 3.7% of all home loans in April 2013 to 6.5% last month. (Total mortgages processed by AFG in March 2014 were $4,048 million).  Macquarie is strongest in the refinancing and investor sectors, where it accounted for 9.7% and 7.3% of all loans respectively last month.

Among major lenders, CBA and Westpac both accounted for 24% of all home loans processed by AFG, while ANZ accounted for 15.6% and NAB 10.3% (figures include their subsidiary lenders).

Meanwhile, Fairfax’s Clancy Yates is today reporting that mortgage competition is heating-up, with lenders climbing over each other to sell mortgages and expand their market share, crushing loan margins in the process:

With banks offering hefty discounts to new borrowers, [NAB] group executive Gavin Slater said the pricing of new loans was subtly crimping the bank’s margins from mortgages, a trend that is likely to continue…

‘‘If I had to predict the future, I don’t see margin spreads going the other way… I don’t see them going up. I think margin pressure is a fact of our industry and I think it reflects competition’’…

Bank of Queensland chief executive Stuart Grimshaw this month likened loan competition to an “abattoir” and suggested credit standards were slipping…

If Saul Eslake’s 50 Years of Housing Policy Failure presentation showed us one thing, it was that cheaper and more readily available access to credit, along with other demand-side measures aimed at promoting “housing affordability”, have done absolutely nothing to improve access to housing. Despite the massive decline in interest rates and improved access to credit, as well as the myriad of subsidies to first home buyers, the home ownership rate has decreased over the past 50 years (see next chart).

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Indeed, under Australia’s constipated planning system, increased mortgage competition and the relaxation of lending standards offers minimal benefits to home buyers and the economy more generally, since the extra capacity to borrow would soon be capitalised into higher home prices.

At the same time, the relaxing of lending standards increases risks to the financial system, increasing the prospect that tax payers could be called upon to support the financial system in the event that the housing market experiences a significant correction.

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Leith van Onselen


  1. There is a fair bit of discounting going on to get quality clients. Credit quality is excellent but it won’t stay that way forever.

    70% home ownership is very high on a global comparison. I doubt that we can get it much higher without taking on to much risk.

    • Peter, any idea what the maximum discount is at the moment?

      I have a 1% discount at one of the Big Four with a reasonably-sized mortgage (fits in to the largest size for calculating discounts) that’s around 2.5 times income and less than 70% LVR.

      Is it worth trying to negotiate 1.25% or more off?

      • You should get at least 1.15% and probably will get 1.25% or close with most of the big four. I would get a rate offer in writing then you can show your lender what the others will offer you in writing.

        If your loan is above $750K but under $1M then 4.69% is about as good as it gets. The lower LVR will help you as it impacts on the cost of funds.

      • Yes AB that’s correct. It’s a discount off the SVR for the life of the loan.

        We don’t have teaser rates here. We do have honeymoon rates but I don’t use them. They look OK but a great rate from day 1 seems to work out better for most people, or a basic rate for small loans.

        Depend on the circumstances.

    • Thanks AB and Peter.

      As an aside, I’ve managed to talk up the advertised term deposit rate by about 1% a couple of times over the last six months. Seems like the banks apply a lazy tax to borrowers and lenders.

      • @ Monkey – well done. Banks can be quite negotiable. If you don’t ask, ya don’t get.

  2. When you too get these headline “Home loan affordability worsened in March, at the fastest rate in more than 12 years.” then those Australians who haven’t seen what’s coming might understand why historically low mortgage interest rates will be the curse of their future lives.