17 NEWS
Banks battle for business
Kathleen Donaghey
CONSUMERS can expect
more seductive offers from
the warring big four banks
as competition heats up.
But the “headline-grabbing”
deals may not provide the best
savings, experts have warned.
The Commonwealth Bank last
week struck a major blow with a
no-fee home loan for customers
with a 20 per cent deposit or
mortgage insurance.
That included potential
savings of $600 on the
application fee, $700 on exit
fees and $8 a month on account
keeping.
The offer came after
competitors abolished their $700
exit fee and various account-
keeping charges.
But John Symond, of
mortgage broker Aussie, said
there was too much “noise”,
“trickery” and “marketing”
distracting people from the facts.
“The no-fee deal on face value
sounds really interesting,” Mr
Symond said.
“But there are cheaper interest
rates out there.
“You have to find the cheaper
interest rates that don’t have the
fees,” he said.
Mr Symond said the best deals
were generally not with the big
four banks.
“People go there because they
couldn’t be bothered.
“They look at the headline
deal and say, ‘This looks all
right’,” he said.
“And then they find
themselves in the future with
hefty charges and a deal they
realise they are not happy with.”
RateCity CEO Damian Smith
agreed that borrowers should
focus most on finding the lowest
possible interest rate.
Commonwealth Bank
under home loan
pressure
Peter Taylor
GROWTH in the
Commonwealth Bank’s
mortgage business tumbled
to anaemic levels in the
weeks preceding the bitter
stoush that has engulfed the
banking industry.
New data reveals that the
mortgage book of Australia’s
biggest home lender grew by
0.17 per cent in January, which
is less than half the pace of all
the other major banks.
The data, released yesterday
by the banking regulator, lays
bare the reason for the CBA’s
combative reaction to National
Australia Bank’s campaign to
poach mortgage customers.
It shows that NAB’s mortgage
book grew almost 1 per cent in
January, which is more than
fivefold the growth rate chalked
up by the CBA.
Including figures from the
CBA’s cut-price subsidiary
Bankwest, the group still only
fattened its mortgage book by
0.25 per cent in January, to
$291.6 billion.
The figures come as the banks
seek mortgage growth in lieu of
the uptick in business lending
that has been widely forecast but
yet to materialise.
couriermail.com.au
EX P E RT WA R N : Headline-grabbing home loan deals may not provide the best savings.
“The no-fee home loan
compares favourably on fees to
other products from the big four
banks,” Mr Smith said.
“We’d expect some of them
to counter with similar fee
reductions, which is good news
for borrowers,” he said.
“However, borrowers should
always remember that the
ongoing interest rate is a more
important factor in the real cost
of their loan over time.”
“Which means borrowers
Nomura analyst Victor
German said the data showed
that CBA management, which
has signalled its intention to
recapture more market share,
“still have a bit of a way (to go)
to catch up”.
Last Friday, the CBA fired the
biggest salvo yet in the mortgage
wars that were unleashed by
NAB earlier last month with
its offer to pay exit fees for
customers who jumped ship
from its biggest rivals.
The CBA released a new
home loan product that carries
no fees and - with an interest
rate of 7.24 per cent - is priced
significantly below the standard
variable rates of all the other
major banks.
Credit Suisse analyst Jarrod
Martin said the effects on the
industry had been marked.
“Loan growth across the
system has been quite subdued,”
Mr Martin said.
“For a period of time, both
Westpac and CBA were willing
to cede some form of market
share,” he said.
“But now, with lending still
subdued, they’re looking at
defending their positions.”
The publication of the
Australian Prudential Regulation
Authority lending data coincided
with the release of downbeat
should make sure to check the
rate as carefully as the fees,” Mr
Smith said.
The ANZ was the first to
abolish the $700 exit fee across
all home loans in November.
The NAB followed suit.
Then a fortnight ago the NAB
offered to also pay the exit fees
of customers switching to NAB
from the CBA and Westpac, a
move that has been duplicated
by Westpac for business
customers.
customer satisfaction figures for
CBA.
Polling by Roy Morgan
Research indicates the CBA
is paying a heavy price for
aggressively lifting its standard
variable mortgage rate on
Melbourne Cup Day.
Roy Morgan found that
the CBA has since suffered
the biggest fall in customer
satisfaction among the major
banks, a 2.6 percentage point
slide over the three months to
January, to 72.7 per cent.
While it is still leading NAB,
on 71.8 per cent, the gap has
narrowed significantly. ANZ
leads the big four on 75.4 per
cent.
Separately yesterday, APRA
provided further clarity on the
rules it will enforce in Australia
as part of a new global accord
designed to strengthen the
balance sheets of banks.
Cash and government
securities are among a select
group of so called “level one”
assets banks will be required to
hold in what analysts said was a
strict interpretation of the global
rules.
APRA also said that other
asset classes could be added
to the list later, depending on
market developments.
Westpac and the CBA have
not yet abolished exit fees.
The CBA is waiving
its $600 application fee
on new home loans while
Westpac offers discounts on fees
and products.
The ANZ, which fired the
first salvo in November, said
yesterday it was not interested in
what other banks were doing.
“It’s not a war,” an NAB
spokesman said.
“We’ve been doing this the
Big Bank will
face more fury
AAP
FEDERAL Housing Minister
Tanya Plibersek has given the
thumbs down to tax breaks
on loans for first-home
buyers.
Aussie Home Loans boss John
Symond has said the measure
would help ease the housing
affordability crisis.
But Ms Plibersek said it
wasn’t the fairest way of helping
first-home buyers.
“Whenever you make
something tax deductible, the
biggest benefits go to the highest
earners and the people who have
spent the most on their house,”
she told Channel 9 today.
“If you are wealthy and have
bought a very big house, then
you get a much, much bigger
benefit.”
What needed to be done was
to make sure there was more
affordable housing, especially at
entry level.
A senate committee report
released yesterday said the
average cost of a house in the
1980s was three to four times
the average annual wage but
was now the equivalent to seven
years’ wages.
Ms Plibersek said the report
made clear the real problem
in housing affordability was
that too few homes were being
built and, for a wide variety of
reasons, that would take time to
whole time.
“We have a clear strategy to
focus on the customer.
“We’ve been consistently
growing market share as
well as improving customer
satisfaction.”
A Commonwealth Bank
spokesman said their changes
‘simplified things’.
“It’s a competitive market out
there and by getting rid of fees,
it makes it simple for everyone,”
the spokesman said.
fix.
“There are well over 20
recommendations. We are
looking at them very closely
now,” she said.
“I got the report late last
night. So I am not going to start
agreeing or disagreeing with
individual recommendations.”
The report recommended
changes to planning processes
and infrastructure charges.
“They (the committee)
also say we need to increase
the stock of affordable rental
accommodation... We have
already begun to move on a
number of the issues that this
report goes into in some detail,”
Ms Plibersek said.
The report also recommended
bigger grants for people buying
newly built homes.
“The Government agrees
that we need to stimulate the
building of new homes but I am
not yet sure that is the best way.
“We need to make sure that
those house and land packages
or units are coming onto the
market more quickly so that the
developers aren’t passing on
lots of expenses, holding costs,
interest rates and so on onto the
people who are buying them.
“Most important of all, we
have to keep a lid on inflation
and downward pressure on
interest rates so that people
feel confident of going into the
market.”
Monday, March 14, 2011 The Courier-Mail 17
Homeloan
war to hit
earning
Peter Taylor
THE price war erupting in
Australia’s mortgage market
threatens to hit profitability
in the banking industry and
spill over into other products,
wreaking even further havoc.
Industry experts are warning
that the banks are hurtling into
a dangerous battle that will
ultimately have little impact on
market share but almost certainly
savage profit margins.
Banks who join the stoush
will not only write new loans
at lower margins but also have
to absorb extra costs from
increasing “churn” as borrowers
stake out better deals, according
to Credit Suisse.
The global investment bank
said the last comprehensive
home loan war that engulfed the
domestic banking industry, back
in the 1990s, saw prices tumble
relative to the official interest
rate.
In the first detailed study
into the likely consequences of
the new war, a team of Credit
Suisse analysts led by Jarrod
Martin have claimed the battle
represents “a threat to overall
industry profitability”.
“The legacy of prior mortgage
wars is lower margins,” the
analysts said in a client note.
“History shows that mortgage
price wars reduce profitability
and lead to little change in
market share.”
According to their research,
the gap between the average
mortgage rate and the official
cash rate tumbled from 3
percentage points to 1.7
percentage points during the
aggressive war in the mid-1990s.
That battle was spearheaded
by the Commonwealth Bank,
which cut its mortgage pricing
by 1.45 percentage points in two
devastating strikes on its rivals
that came nine months apart.
National Australia Bank
launched a similar war in New
Zealand about six years ago.
In both cases, the market share
of major banks had changed
little when the warfare ceased.
“We see the emerging price
war... as unlikely to see any
significant or sustained shift in
mortgage market share,” the
Credit Suisse analysts said.
NAB, which has dramatically
outpaced its biggest rivals in
mortgage growth in recent
months, opened fire last month
with a campaign to poach
customers from the CBA and
Westpac.
According to the Credit Suisse
analysts, the unfolding price war
is “a result of a protracted period
of subdued asset growth for the
banks, particularly in business
lending”.
But they have warned that it
could mushroom into a much
bigger battle, with the “threat
of a mortgage price war boiling
over into other segments and
therefore eroding profitability
across larger revenue pools”.
In a note titled “War! Who is
it good for?”, Nomura analyst
Victor German agreed that
competition in the retail space
appeared to be intensifying.