As competition moves to variable rates, smaller lenders are continuing to gain ground
Smaller financial institutions are chipping away at the dominance of the major banks in the mortgage market as competition moves from fixed to variable rates.
New data from digital property settlement platform PEXA shows that for New South Wales and Victoria combined, the major banks and their subsidiaries went from adding 1,575 more mortgages than they lost in March 2021, to losing more than 2,600 last month. Non-major bank lenders, in contrast, added 1,060 mortgages in March 2021 and saw that number skyrocket to a net 5,787 last month, according to The Sydney Morning Herald.
Mike Gill, head of research at PEXA, said the major banks were losing market share to non-majors in both new mortgages and refinancing.
“This was driven by the major banks increasing fixed loan rates in expectation of interest rate rises, together with non-majors competing strongly on variable-rate loans,” Gill told the Herald. “We suspect borrowers were also attracted to non-major lenders, given they may offer quicker approval times with an increased likelihood of loan approval compared to the major banks, with their tighter lending requirements.”
Data from PEXA showed that non-major lenders are doing well in new mortgages, and especially well in refinances, the Herald reported. Most of the competition for new business is now with variable rates, since fixed rates have spiked in anticipation of upcoming cash-rate rises.
Data from the Australian Bureau of Statistics showed that the popularity of fixed rates – which hit a peak in 2021 – is on the wane. The proportion of fixed-rate loans funded in February was only 28%, down from a peak of 46% in July of last year, the Herald reported.
Sally Tindall, research director at RateCity, told the publication that many first-home buyers get a loan from the bank they’re familiar with. However, those who are refinancing their mortgage tend to be more interested in finding the best rate available and will shop around.
While the major banks are becoming more competitive on variable rates, they often still fall short of what the non-majors are offering.
Read next: Mortgage war unlikely to ease this year, analysts say
“The big banks might have walked away from competitive fixed rates,” Tindall told the Herald. “However, they have been forced to improve their variable rates to keep new business coming in the door.”
All four of the major banks have slashed variable rates in the past three months – but usually only for new customers on their basic variable rates.
“Anyone who has been loyal to their big bank lender is probably getting a raw deal, unless they pick up the phone and haggle,” Tindall told the Herald.
Tindall said she suspected the big four have been forced to cut their variable rates because of the highly competitive rates being offered by non-major lenders. There are still 40 lenders offering at least one variable rate lower than the big four banks’ lowest variable rates, she said.
