By Martin North, cross-posted from the Digital Finance Analytics Blog
We just updated our latest household survey responses, and today I update our findings on mortgage discounting. We last covered bank margins in May, and highlighted the selective discounting in play as funding costs ease. People who do not switch will not be enjoying the best rates. One question in our survey asks new borrowers the discount they achieved form standard rates. We have been maintaining this data for a number of years. We are interested in the discount achieved on average from the standard rate. Both the mean discount and range of discounts is increasing significantly.
First, here is the latest discount data, plotted against the RBA cash rate (the light blue line). We see that the mean average is close to 1% off standard rates. This is a record high. The darker blue line plots the discount achieved.
What is even more interesting is the spread or range of discounts achieved. Here we chart the low and high mean spreads. We see that the range is wider than its been since before the GFC.
Banks continue to be selective about the business they want to write, and are offering significant discounts off their standard rates to some customers. Other customers, including most first time buyers are not achieving the same outcome on rates, with significantly lower discounts achieved. We see the highest discounts been offered by some players for investment loans, and other for larger loans, especially at lower LVRs. If your loans has a higher LVR the discount on average is lower.
However, it is clear that the discount achieved partly depends on how firmly prospective borrowers negotiate. Those who don’t ask, won’t get. My message is, in the current low credit growth environment, banks are more than willing to lend. They cannot necessarily relax lending standards to power growth, thanks to the recent broadsides from the RBA and APRA, so they are willing to go out of their way to grab good business, and discounting is the lever of choice. A word of warning to borrowers though, make sure these offers are not just introductory rates, else you might get a rude shock later when the “special” rate morphs back to a higher and uncompetitive normal rate.
