Clancy Yeates| Sydney Morning Herald| 23 August 2016
The Commonwealth Bank will cut the size of lucrative discounts offered to customers taking out new home loans by 0.15 percentage points, pointing to higher funding costs and tougher capital rules.
With banks competing fiercely for credit growth in recent months, lenders have sought to win customers by offering deals that are 1.4 to 1.5 percentage points below standard variable rates for new borrowers, a trend that eats into profitability.
CBA, which rival lenders say has until now has been competing particularly aggressively, on Monday told mortgage brokers it would lower the size of its discounts available through key package deals by 0.15 percentage points. Discounts available through a less popular package deal will be cut by 0.08 percentage points.
The change will not affect existing loans, but customers applying for home loans after this Friday will be offered less attractive rates than would have been the case.
The change from Australia’s largest mortgage lender comes as the property market shows signs of coming back to life, with Sydney this weekend recording its highest auction clearance rate since the boom period last year.
A CBA spokesman confirmed the change in discounting policy, saying it was driven by higher funding costs and the bank balancing customers’ interests against those of shareholders.
“For new applications we are reducing discounts on the specials of selected products and packages,” the spokesman said. “These changes are required due to increased funding costs, capital requirements and our continued focus on balancing the needs of customers and shareholders.”
It is understood the change in pricing will affect loans written by mortgage brokers and the banks’ own staff in branches.
The reduction in discounts comes as banks’ profit margins have been squeezed by fierce competition and discounting in home lending, with analysts this month questioning CBA’s management over the growing proportion of mortgages being arranged through brokers.
Rival lender Bendigo and Adelaide Bank also said this month the pricing of some new lending was “verging on the irrational” and was unsustainable.
CBA and its rivals Westpac, National Australia Bank and ANZ Bank also used this month’s cut in official interest rates to limit a squeeze on their profit margins by only passing about half of the reduction to their mortgage customers.
It comes amid signs of a return to boom time auction results in Sydney, with Domain data showing 84.1 per cent of homes up for auction on the weekend were sold, a new record for August, albeit with significantly fewer listings than last year.
If the move is copied by other banks, as often occurs in mortgage pricing, it could reduce the impact on the housing market of the Reserve Bank’s decision to this month cut official interest rates to a record 1.5 per cent.
CBA cut all its variable mortgage rates by 0.13 percentage points this month, but Monday’s change in discounting policy will effectively reverse that reduction for customers applying for new loans under the deals affected by these changes.