Interest rates stayed on hold for the third Reserve Bank board meeting in a row this week, but beneath the surface, major changes are brewing in the mortgage market.
One of the most important questions for bank shareholders, not to mention customers, continues to be just how fierce the competition is between banks over the nation’s $2.2 trillion in home loans.
Banks are using their smaller subsidiaries to compete on price, Canstar found this week.Credit: Dionne Gain
The “mortgage war” was a defining feature of the banking landscape in 2023, as an outbreak of competition prompted loud complaints from bankers about “irrational” and profit-sapping home loan pricing, and moves by banks to scrap cashbacks and other promotions.
This year, a clearer picture is emerging of how some major banks appear to be fighting the mortgage battle, while still trying to keep their shareholders happy. In this next stage of the mortgage war, it looks as though customers may have to look a bit harder for a competitive interest rate than they did last year, when banks were falling over each other to retain borrowers.
Before getting to these changes, however, it’s worth revisiting how we got here. This time last year, profits were being crunched and bank executives openly complained about some of their competitors writing new loans at unsustainably low interest rates.
Seeking to protect their profit margins, Commonwealth Bank, National Australia Bank and Westpac soon acted, and stopped paying cashbacks to lure new borrowers or refinancers. Some of the most competitive interest rates in the market were also wound back.
Companies are free to remove promotions as they like, but the way bankers telegraphed their intentions raised eyebrows at the competition watchdog. As Australian Competition and Consumer Commission deputy chair Mick Keogh said in August: “If this market was truly competitive, we would not expect to see banks publicly flagging plans to reduce the competitiveness of their offerings.”
Economics also tells us that in a competitive market, a business that decides to compete a bit less fiercely should feel pain. They won’t win as many customers, which is something any big business won’t tolerate for long.
Banks are changing the way they fight the mortgage war
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22.03.2024
Interest rates stayed on hold for the third Reserve Bank board meeting in a row this week, but beneath the surface, major changes are brewing in the mortgage market.
One of the most important questions for bank shareholders, not to mention customers, continues to be just how fierce the competition is between banks over the nation’s $2.2 trillion in home loans.
Banks are using their smaller subsidiaries to compete on price, Canstar found this week.Credit: Dionne Gain
The “mortgage war” was a defining feature of the banking landscape in........
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