Duncan Hughes| Australian Financial Review| 2 August 2018
ANZ, the nation’s third largest lender, has slashed variable rates on its “no frills” home loan by 34 basis points to 3.65 per cent in the latest move by a big lender to stimulate flagging demand and build market share.
The move has surprised a market expecting rate increases following the rise in wholesale funding costs, greater regulatory expenses and the likelihood of higher cash rates.
But it is also another example of the big four exploiting rising funding costs to snatch mortgage market share from smaller rivals, which have been forced to raise variable rates to maintain their profitability. Big banks, however, have been mostly absorbinig the higher cost of funding by keeping variable rates stable.
ANZ’s move is further evidence of banks jostling for market share, especially for lower risk borrowers.
For example, it is 69 basis points cheaper than Westpac’s comparable “Premier Advantage Rocket Repay” principal and interest offering.
It is being introduced at a time when lenders are under intense pressure from prudential regulators and the banking royal commission to scrutinise borrowers’ capacity to repay loans.
This has resulted in forensic analyses of borrowers’ total income and expenses.
Race for new customers
ANZ borrowers with less than 20 per cent deposit will pay the old rate of 3.99 per cent.
Sally Tindall, research director at RateCity, said: “It shows the bank is competing hard to get new customers as non-banks threaten their market share. It’s a huge move.”
There’s a possibility other lenders will try to protect – or increase – their residential lending market share through new offers.
Residential loans typically comprise about 55 per cent of Australian bank loans, about 25 per cent of group revenues and 30 per cent of cash earnings, according to investment bank Morgan Stanley.
House prices continue to slide, particularly in Melbourne and Sydney, auction clearance rates are falling and market sentiment is weakening, according to analysis by CoreLogic, which monitors prices.
ANZ is also reducing its popular two and three-year fixed rates by between 10 and 24 basis points for principal and interest investors and owner-occupied borrowers.
Earlier this week, Commonwealth Bank, the country’s largest mortgage lender, cut lending rates on popular fixed interest products for home buyers and investors by 10 basis points.
The bank is also refocusing its marketing on the most popular segment of the lending market with cuts to a range of products that target high quality borrowers. The latest cuts do not include owner-occupier, interest-only borrowers.
CBA has lowered interest rates on two and three-year fixed rate, owner-occupier principal and interest loans to 3.79 per cent and 3.89 per cent respectively.
Three-year fixed rate investment home loans have been cut to 4.10 per cent.
Westpac Group, Suncorp and CBA recently cut honeymoon rates on home loan products, in a bid to stimulate growth as real estate markets slow.
Three of the top five mortgage lenders are flexing their balance sheet muscle to offer discounts of up to 55 basis points for investors and home buyers on introductory rates.