Big Four Banks’ Mortgage Market Share Crashes as Refinancing Booms

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According to Macquarie analyst Victor German, in the three months to April, the mortgage market for all depository institutions grew by about $31 billion, but the big four recovered only $11.5 billion. dollars of this loan growth.

If the banking giants had increased their new mortgage portfolios in line with their 75% share of all existing home loans during this period, they would have expanded their loan portfolios by about $23 billion.

German says the big four had an edge over their smaller rivals in recent years because they were able to offer the lowest fixed interest rates that their smaller rivals couldn’t. However, that has now changed.

“The interest rates they were able to offer on fixed loans were unmatched by many others. Now that ain’t the case, they started losing [market] share again,” says German.

As interest rates rise, German says there is likely to be continued competitive pressure in the home loan market as people who get cheap fixed rate loans consider other options.

“As fixed loans mature, people will move from 2% interest rates to variable rates of 3% and higher. I think we’ll see a lot of consumers looking at the market and seeing who is offering good rates. »

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Banks also have their own specific problems: Westpac and ANZ, in particular, have well-documented difficulties in approving loan applications quickly.

In a bid to regain market share, ANZ and Westpac took the unusual step of cutting some interest rates for new borrowers in May, shortly after raising their mortgage interest rates.

Many cashback offers are also offered. RateCity reports that 27 lenders are offering cashback, which can be worth several thousand dollars for an average-sized home loan. Other banks try to entice customers with perks like loyalty points or free internet for three years.

However, cash back alone is usually less important than getting a lower rate when you refinance, which can save you thousands of dollars over several years.

For banks’ shareholders, it’s been a tough ride, with share prices falling this month in response to fears of a global recession and rising interest rates.

In the longer term, the market should also closely monitor the impact of stiff competition in the mortgage sector on bank profit margins, which have a decisive influence on overall profits.

Even so, Morningstar analyst Nathan Zaia believes the big four banks are better positioned than their smaller rivals to weather official interest rates rising faster than previously thought.

A key factor that will help the big four, says Zaia, is the “free kick” they get from all the money households keep in low-interest transaction and savings accounts, rather than term deposits, which tend to cost banks more.

“It’s a balancing act,” says Zaia. “I still think that as we move into a higher interest rate environment, it will be the smaller banks that will suffer the most.”

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