Factors Behind Low Mortgage Rates: Australian Big 4 Banks
Team Veye | 08-May-2023
The Big 4 Banks of Australia - considered the largest lenders (as they control about 80% of the country’s home loan and deposit market) have started pulling down their mortgage rates to resist losing their hold in the market. It’s an attempt to attract borrowers amid falling credit growth. The growth in Australian home loans fell to a four-year low of 5.6% in Jun’18.
On the contrary, rising wholesale funding costs have forced smaller rivals to increase their rates. It has been the same story for the Big 4 banks as well as the pool of funds they are increasingly accessing to source home loans has become more expensive. Westpac's head of interest rate strategy David McColough stated that they haven't seen these levels of short-term interest rates, the cost of funds for the banks, outside of a financial crisis before.
However, the big banks are reluctant to pass this cost on to borrowers because not only would it make them loose their market share but it may also add to the growing social and political backlash stemming from the banking royal commission.
Last week, Australia and New Zealand Banking Group reduced the variable mortgage rate by 34 basis points to 3.65%, just days after, Commonwealth Bank of Australia had lowered some of its fixed mortgage rates by 10 basis points on competition grounds. ANZ’s discount will apply to new customers for loans financing less than 80% of a property
They have been constantly losing market share to smaller competitors who have been growing mortgage books at double-digit rates by offering cheaper rates in the past. But over the past few months, majority of smaller banks have raised their home loan rates to protect profit margins against a sudden increase in wholesale funding costs. However, the big four banks are not jumping on the bandwagon. It will be interesting to see duration for which they can do so while trying to strike a balance between rising funding costs & decreasing market share.
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