Lenders are offering double-digit discounts and decades-low fixed home loan rates in a new round of fierce competition to build market share in booming property markets.
Transactions, or the amount of properties being bought and sold, are at record levels despite February traditionally being a quiet month, according to RP Data, which monitors more than 90 per cent of the nation’s mortgage lending.
Mortgage credit growth of 5 per cent remains one-third the level of the peaks hit in the lead-up to the global financial crisis, supporting anecdotal claims that rising property prices are encouraging existing borrowers to shop around different lenders, as well as claims of subdued borrowing at the top end and overseas money financing deals. “It’s fierce out there and could get a lot fiercer,” said Peter Arnold, research manager at RateCity which provides comparative rates and price information.
Some bankers are accusing competitors of having lax lending standards and offering unadvertised or under-the-counter discounts to encourage new business or to encourage existing borrowers to switch lenders.
ANZ Banking Group had the biggest recent market share increase albeit off a low base.
“We are fighting hard for business, but we don’t believe we are the most aggressive discounter,” an ANZ spokesman said.
Fixed-rate mortgages, improved advice and service, and discounts on credit and insurance products are the big guns being used in the price war as near record-low cash rates provide little room to manoeuvre on standard variable rates.
Building societies, online and low-overhead small lenders such as ME Bank are leading the charge for market share with “switch, ditch and smile” packages offering fixed rates below 5 per cent.
STRONG APARTMENT SALES
Jamie McPhee, chief executive of ME Bank, which offers a 4.84 per cent three-year fixed rate, said fixed-rate volumes had more than doubled to about half of new applications.
“Competition and a sense the cash rate has reached its nadir are driving demand,” he said.
National Australia Bank (NAB) recently cut its four-year fixed lending rate to a 20-year low of 5.44 per cent and has the lowest standard variable rate of 5.88 per cent, which has been matched by ANZ. Fixed rates and product discounts enable lenders to respond quickly to competitors and lock in customers for set terms and across products.
All the big four banks, which have large wealth management divisions, are offering heavily discounted insurance and personal credit lines to back their discount mortgages.
For example, Commonwealth Bank of Australia is offering a fixed-rate package that includes a 15 per cent discount on combined residential building and contents insurance, 10 per cent on car insurance, 5 per cent on loan protection and 5 per cent on first-year life insurance and income protection, according to Find.com, an online rates service.
NAB will offer 12 months’ home insurance for 11 months of premiums and Westpac Banking Corp and ANZ have insurance and other discounts.
Buyer advocate Christopher Koren, a director of Morrell & Koren, said sales activity appeared to be strongest for apartments, which attracted a lot of overseas money, and for properties below $1 million. Mr Koren, a 30-year industry veteran, said the top-end Melbourne and Sydney markets are “treading water” particularly in the multimillion-dollar sector.