Banking giants have recently made it abundantly clear they’d be happy to compete a bit less ferociously on price for home loan customers,as mortgage profits feel the squeeze.
One sign of this is that mortgage discounts – which banks make to their headline interest rates – have been shrinking.
Canstar reports all big four banks have increased certain advertised variable mortgage rates at least twice since March. Westpac,NAB andCommonwealth Bank have also announced they’ll stop paying cashbacks of several thousand dollars,and RateCity says the total number of lenders paying cashbacks has declined slightly from its peak.
What do these trends mean for borrowers? Has home loan competition really started to dwindle?
It’s pretty clear the banks are trying to pull back on some of their most competitive offers to protect profit margins. They’re doing this because they feel the level of home loan competition was “irrational”,that is,loans were being written at rates that delivered returns lower than those demanded by shareholders.
Canstar group executive Steve Mickenbecker explains some of the most competitive mortgage deals were a product of a different time,when lenders could raise funds extremely cheaply because deposit interest rates were extremely low. Lately,banks have started competing more aggressively for deposits,and that’s put pressure on banks’ margins.