Home buyers are the big winners as the major banks offer larger interest rates discounts on mortgages in a bid to win customers as the property market heats up.
Amid intense competition in the home loan market, mortgage discount of at least 0.85 percentage points have become common place, while some borrowers are having more than 1 per cent point lopped off their interest rates, new research shows.
Mortgage brokers say the larger discounts are good news for home buyers, though concerns about the ability of smaller banks to compete with the big four banks have surfaced as the government conducts a major inquiry into the financial system.
EXTREMELY COMPETITIVE YEAR
“The last year has probably been the most competitive we’ve experienced in our 20 years in the industry,” said Mark Hewitt, the general manager of sales at mortgage broker AFG.
According to data compiled by AFG, ANZ Banking Group is offering those that want to borrow more than $500,000 a discount of 0.85 of a percentage point off their standard variable rate, while Commonwealth Bank of Australia is reducing its rates by the same amount for customers that borrow between $500,000 and $750,000.
Westpac Banking Corp. is discounting its variable rates by 0.90 percentage point for customers that borrow between $250,000 and $750,000 by April 30 and National Australia Bank’s Homeside group is offering a 0.94 percentage point discount for loans between $500,000 and $750,000.
Macquarie Bank, which is making a bigger push into home loans, is offering a discount of 1.01 percentage points for loans between $500,000 and $750,000.
RBA: LOW RATES A BOOST TO MARKET
Official Reserve Bank of Australia statistics show the average mortgage discount for loans above $250,000 was 0.83 of a percentage point at the end of January, up from 0.75 of a percentage point a year ago. In the minutes from its latest monetary policy meeting, released on Tuesday, the RBA said low interest rates were providing a boost to the property market. The RBA kept official interest rates at a record low 2.5 per cent at the February 4 meeting, a factor that has helped house prices rise by 9.3 per cent over the past year.
“The effects of low interest rates were clearly evident in the housing market,” the RBA said on Tuesday.
With lenders competing heavily for customers, Bendigo and Adelaide Bank chief Mike Hirst said on Monday that he would not be drawn into a mortgage “price war”. Bendigo posted a 9.5 per cent increase in cash profit to $185.9 million for the first half of the 2014 financial year, but the pace of its loan grow slowed from 4.7 per cent to 2.3 per cent. Bendigo has a standard variable rate of 6.01 per cent, higher than the big four banks, though it offers a rate of 5.09 per cent on some loans through its Adelaide Bank subsidiary.
“As we are in a low lending growth environment, we want to avoid getting into a price war,” Mr Hirst said.
As the government’s financial system inquiry gets under way, smaller banks have urged policy makers to examine ways to boost competition. The inquiry, which is taking submissions until the end of March, is the biggest investigation of the financial system since the Wallis review in 1997.
“We need to consider whether we have the right balance between competition, stability and efficiency,” the inquiry’s chair, David Murray, said last week.
Amid intense competition for customers, Mr Hewitt said lenders were pulling out all steps to lure borrowers.
“We are seeing discounting to headline rates, but no doubt there has also been some under the table discounting going on amongst lenders who are willing to win business from competitors,” Mr Hewitt said.
“Some lenders will make it known to brokers that if they need to match a price to beat a certain competitor, then to give them a call and see what can be done.”