Eric Johnston | Domain | October 5, 2011
Competition between banks and other lenders for home loan customers has returned to levels last seen before the global financial crisis.
In another of the deals currently available in the sector, market heavyweight Westpac this morning ramped-up its home lending offering with a $1000 cash bonus for new home loan customers that sign up by the end of the month. The cash offer comes on top of a discounted variable interest rate.
However, JPMorgan banking analyst Scott Manning said the widespread discounting across new loans is unlikely to last while conditions in offshore funding remain challenging.
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The drive to grow market share in the face of subdued demand for loans was driving discounting across mortgages.
“Although discounting off headline rates is nothing new, the speed with which it has developed, and the depth at which it now is, is quite remarkable,” Mr Manning said at the launch of the latest JPMorgan-Fujitsu Australian Mortgage Industry report.
The comprehensive report provides a snapshot of the nation’s mortgage and housing market.
But Mr Manning warned the current pricing on mortgages was largely being supported by easing competition between banks for deposits.
“We believe the current pricing is about as competitive as it can get prior to diluting profitability. In this type of environment, retaining existing higher margin customers is imperative,” Mr Manning said.
The report found housing credit growth has continued to soften over the past 12 months driven by a range of factors including ongoing weak business and consumer confidence and concerns over global growth and the European sovereign debt crisis.
The annualised growth rate for housing credit was 6.5 per cent. The report expects housing growth to continue in the mid-single digit rate over the next few years.
It also found Commonwealth Bank and Westpac have been losing market share over the past year to rival National Australia Bank and smaller lenders.
“NAB has continued its strong growth, capturing market share since January 2010 through its repositioning of the retail bank through its lower fee and rates proposition,” the report found.
The report comes on the heels of rising expectations that the Reserve Bank could cut interest rates at its next meeting on Melbourne Cup Tuesday.
Members who met in Sydney yesterday felt the economy was weak enough to justify an immediate cut. They held off because they wanted to be sure they could “tell a credible story” about inflation according to a statement released by the RBA yesterday.
The next inflation figures are due on October 26, six days before the Melbourne Cup day meeting. The Bureau of Statistics has revised down the previous underlying rate from 2.7 to 2.5 per cent and has cut the quarterly rate from 0.9 to 0.7 per cent.