October 22, 2010
As the anticipation of a predicted rate rise before the end of the year draws nearer, experts worry there is a lack of competition in the mortgage lending market and borrowers aren’t getting the best deals on their home loans.
Major four hold majority of market
Currently the major four banks (Commonwealth Bank, National Australia Bank, ANZ and Westpac) control the bulk of the home loan market. According to the Australian Prudential Regulation Authority (APRA), which monitors banking data, the big four held nearly 80 percent of the total personal mortgage lending market in August. Westpac held the largest share at 26.7 percent, followed by Commonwealth at 24.5 percent, NAB at 14.5 percent and ANZ at 14.2 percent.
With all this power comes control allowing them the ability to influence other lenders and the market by setting the benchmark rates, which most lenders then follow. And as they take over their competitors, for instance Westpac now owns St George Bank and NAB owns UBank, it could be getting even harder for borrowers to get a good deal on their home loan.
Symonds said “unless Australia does something significant … for the next few years the big banks will not have any competition”.
Find a lower rate online
But the good news is that borrowers may still be able to beat the banks at their own game as the gap between variable rates increases.
RateCity found that the gap between the lowest and highest standard variable rates across more than 100 lenders has widened by 32 basis points since October 2009 and by 15 basis points for basic variable rates. The current average standard variable rate is 7.05 percent while the current average basic variable rate is 6.79 percent.
Borrowers can avoid paying high interest rates and find more competitive rates by comparing home loans online. For instance, currently on RateCity the highest comparison variable rate for a $300,000 loan size is 8.76 percent while the lowest is 6.31 percent. If you compared the repayments for both on a $300,000 mortgage, you could save $478 each month, $5736 in one year and $143,400 over the 25-year term of the loan.