As the Reserve Bank of Australia leaves the cash rate on hold at 2.5 percent again today, a rate war has emerged in the Australian home loans market.
The RateCity database shows that over 1000* home loans have had rates cut out-of-cycle since July, when Commonwealth Bank initiated a flurry of out-of-cycle rates cuts when it lowered its 5-year fixed rate to 4.99 percent.
Peter Arnold, product director at RateCity.com.au, said rate cuts were predominately in the fixed rate space, with 5-year terms driving competition.
“Fixed rates have come down quite a bit at 0.32 percentage points on average,” he said.
“But the big surprise has been in the variable rate space. We rarely see much action from lenders with their variable rates – they are largely led by RBA movements, yet we’ve seen 169 variable loans cut since July and we expect this trend to continue.”
Yet, early indications suggest the rate slashing campaign may have fallen short of the mark for the big four banks; a RateCity analysis of Australian Prudential Regulation Authority banking statistics shows the big four banks’ home loan market share is shrinking.
In the 12 months to September, the major banks – ANZ, Commonwealth Bank, NAB and Westpac – collectively lost 0.40 percentage points of market share relative to the other banks**.
Arnold said intense competition in the home loan space – not just from the other banks, but also from the credit unions, building societies and non-bank lenders – are slowly chipping away at the big four’s market dominance.
“The majors still hold the lion’s share of the home loan market, but it’s shifting as more people look beyond the big players. In a trillion dollar industry, small market share changes equate to big dollars,” he said.
“The major banks have taken a big gamble on the back of reduced funding costs by cutting rates to these record lows in an attempt to regain some of that lost market share from the smaller players. But so far it’s looking like that gamble hasn’t paid off.
“The real winners are the consumers who take advantage of this downward pressure on rates,” he said.
RateCity shows variable rates have come off by 0.31 percentage points since before the last cash rate cut in August 2013, which represents an $825 saving over the course of 15 months on a typical $300,000 loan.