New customers have become the main target as banks wrestle over mortgage market share in a new lending landscape.
Six of the 10 biggest mortgage lenders now offer discounts to new customers, with 170 home-loan products aiming at them directly, according to RateCity, which says existing customers are being “taken for a ride”.
The discounts are in play despite no interest rates move from the Reserve Bank in two years, a regulatory crackdown on bank practices aimed at inappropriate lending, and a royal commission that has exposed extensive wrongdoing in the home-lending sector.
Three of the big four banks offer discounts to new customers. ANZ made headlines this month by cutting its standard variable rate by 0.34 percentage points for new low-risk borrowers.
But existing home loan customers are paying the price, says RateCity research director Sally Tindall.
“Banks are hungry for new business and they are offering discounts worth hundreds, even thousands, of dollars per year to lure customers in,” Ms Tindall says.
“Six out of 10 of the biggest lenders in the country are doing it, so it’s likely that millions of variable customers are being taken for a ride.”
For example, RateCity says a NAB customer who took out a $400,000 loan a year ago could be now paying up to 0.48 percentage points more for the same product compared with a new customer.
“In dollar terms, that equates to up to $110 extra per month or $1320 per year,” Ms Tindall says.
Lower-risk focus for banks
Discounts offered to new customers, particularly those presenting as low-risk borrowers, may be further swinging the pendulum towards first-home buyers and away from investors and interest-only borrowers.
Lending to property investors has slumped 16 per cent in the past year, according the latest Bureau of Statistics housing finance data, while loans to owner-occupier first-home buyers surged 22 per cent.
The average amount borrowed by a first-home buyer rose in the latest ABS figures by $5200 to $349,800, while the average loan size for owner-occupiers fell $3500 to $396,600.
“Tighter credit conditions continue to [have an] impact, reflecting APRA’s earlier supervisory measures, as well as additional tightening in the wake of the royal commission into financial services,” says ANZ senior economist Jo Masters.
“We expect credit conditions to tighten further over this year and, as a result, to see further weakness in house prices and building approvals.”
Lenders look set to continue seeking low-risk new customers to plug the gap left by investors, foreign buyers and interest-only borrowers.
ANZ’s new 3.65 per cent variable interest rate is only available to new customers with a deposit of at least 20 per cent.
NAB, CBA and Westpac subsidiaries St George, Bank of Melbourne and BankSA have discounts for new customers.