Australia’s major lenders are once again taking the lion’s share of the borrower market, a new report has revealed.
Research released this week by Australian Finance Group (AFG) shows a further slowing of the market as interest rate increases hit home, and it is impacting how and where borrowers look to finance their mortgages.
AFG CEO David Bailey says the extraordinary competition between the major banks for market share, including cashbacks on offer for new customers, has seen the major lenders once again take market share from their non-major rivals.
“Major lender lodgements were up 2.2% to 61.8%, the highest level since the final quarter of 2020”, Bailey notes.
“This has been fuelled by the majors continuing to benefit from lower funding costs linked to the government’s Term Funding Facility, a lag in passing on deposit rate increases to customers, and the prevalence of subeconomic cash back offers.
“The longer-term consequence of this situation is that smaller lenders will continue to be squeezed, impacting choice and competition for Australian borrowers, and will ultimately result in higher real long-term borrowing costs for Australian homebuyers.”
Bailey thinks that after a welcome pause this month in rate increases, homebuyers facing the impact of ten successive interest rate rises will be looking for ways to save.
“The major banks’ customers often pay a ‘loyalty tax’ as lenders chase new customers with better rates and cashback offers, usually at the expense of their existing customers,” he says.
“This will encourage customers to shop around, however with competition in the home loan market continuing to be the domain of the major lenders, the restoration of an even playing field for non-major lenders is vital to ensure alternative lending options.”
Bailey suggests that as markets factor in predictions of rate falls next year, the pricing of longer-term fixed rate products is beginning to reflect this expectation.
“This has in turn led to more borrowers choosing a fixed rate loan, with the share of those products rising from 4.8% to 5.6%,” he said. “This is the second consecutive quarter they have ticked up, albeit still well below long term averages.”
