Competition among mortgage lenders to get your business could soon heat up again, analysts say.
Key points:
- Refinancing peaked in July and remained high in August
- Data from the banking regulator shows the Commonwealth Bank has lost market share in owner-occupied property lending for two months in a row.
- Experts say competition between banks could intensify again
The country’s largest bank has lost market share in residential lending (including home loans to owner-occupiers and investors) for the first time in more than five years.
Analysts believe that the Commonwealth Bank will not allow its market share to decline further.
“While CBA will likely exercise some patience, history shows that this is not unlimited and if its market share continues to contract, we expect it to respond with pricing,” he said. explained Jonathan Mott of Barrenjoey in a recent note.
“It’s not normal to see their mortgage portfolio going backwards rather than forwards,” said Sally Tindall, RateCity’s research director.
“If Australians continue to refinance en masse, if they continue to move away from Australia’s biggest bank, they will be forced back to that negotiating table.”
CBA’s loss was a gain for other big banks
The decline in Commonwealth Bank’s market share benefited the other three major banks; Westpac, ANZ and NAB, as well as Macquarie Bank.
It comes as thousands of Australians continue to refinance since interest rates skyrocketed.
Refinancings peaked in July, totaling $21.4 billion, before declining slightly to $20.6 billion in August.
Jane Kelly is looking for a better loan for the first time in 10 years, after her interest rate rose to just over 7 per cent.
She found lower rates online and tried to negotiate a better deal with her current bank.
“I know we’re a good customer and I thought maybe the bank would want to keep us and would be interested in giving us a more competitive rate,” Ms Kelly said.
But the bank didn’t want to budge.
“We went through a broker and I found another rate with another bank that is 1.2 (percentage points) lower,” she said.
The so-called “mortgage wars” erupted earlier this year, with most lenders offering cash back or other incentives.
The Commonwealth Bank was the first to backtrack on such offers, in a bid to protect its under-pressure profit margins.
During its annual results in August, CBA CEO Matt Comyn acknowledged this.
“I think what has particularly weighed on our market share performance, and certainly on our volume, will be the removal of cashbacks,” he said.
Mortgage brokers say CBAs tend to be priced higher.
“I certainly think this is a strategy where CBA has not been as rigorous in pricing,” said Mortgage Choice broker Leanne Johnstone.
“So they haven’t reduced interest rates as much as some other lenders have in terms of discounts.”
Mortgage brokers funnel a lot of business to lenders, with about 60 percent of new and refinanced loans coming from this sector.
Will this be the second part of the “mortgage war”?
Ms Johnstone says it’s worth keeping an eye on rates over the coming months.
“I would expect lenders to continue to offer incredible discounts, which is great,” she said.
“I would also expect there to be some reduction, hopefully, in CBA interest rates to compete with some of the other lenders, because we certainly want competition between the banks.”
Daniel and Chaela Bazley recently refinanced, something they do every few years.
“I was looking for a better deal. Everyone is always looking for a better deal,” Mr Bazley said.
“I was considering getting a green loan so I could buy additional solar panels and a battery and replace my hot water with gas. It was very important for me to try to reduce these loans as well.”
They did the comparison themselves and found a lender with a rate 0.4 percentage points lower.
“There are definitely some good deals,” Mr. Bazley said.
He hopes other owners will do the same.
