A near-record number of lenders extend cashback incentives as competition heats up
A near-record number of lenders are extending cashback offers as competition heats up to lure borrowers looking to refinance as they face a mortgage cliff.
Many mortgage borrowers who fixed their home loan when the official cash rate was at a record-low 0.1% are nearing the end of their fixed term, The Australian reported. That means they’re looking at shifting to a variable rate up to three percentage points higher than their current rate.
With the Reserve Bank hiking rates and mortgage growth slowing, lenders are competing fiercely for refinancing and new business. There are 34 lenders currently offering cashback incentives – almost a record level, according to RateCity.
Most of the current offers are exclusively for borrowers who are refinancing, although AMP, Heritage Bank, Reduce Home Loans, and NAB-owned ubank are also offering cash back to borrowers looking for new loans, The Australian reported.
Annual housing credit growth slowed to 6.9% in the period ended Nov. 30, down from 7.1% for the same period a year earlier, The Australian reported. With eight consecutive rate hikes last year and more expected this year, mortgage growth is expected to slow considerably.
Mortgage brokers told The Australian that competition was increasing in 2023, with most lenders focused on cashback offers to lure borrowers.
“The number and volume of cashback offers is just unprecedented and it seems to be the new norm,” David Bailey, chief executive at Australian Finance Group, told the publication. “My view is that banks, rather than offering a cashback, should just put it into the rates to the customer. The refinance market is probably going to be the [most competitive] space until such time that house prices settle, bringing new customers back into the market again.”
Bailey pointed out that thanks to the RBA’s aggressive rate increases, some fixed-rate customers would no longer meet serviceability requirements as they rolled on to a variable rate – meaning they would be forced to stay with their current lender or pay mortgage insurance to switch.
“That’s inevitable, unfortunately, and that might temper some of that refinance activity,” he said.
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Bailey noted that banks were not passing on the higher rates to savers – giving them a funding advantage over non-banks.
“My gut feeling is there is still another six months before that [bank] funding advantage around the deposit book becomes less of an advantage,” he told The Australian. “...That won’t happen until such time that customers start demanding higher deposit rates, and we are starting to see a little bit of that.”
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