Small lenders casualties of big bank mortgage wars: Mortgage Choice

Small lenders are unable to compete with the major banks’ discounted mortgage offers, according to mortgage broker Mortgage Choice.

“Competition between the major banks is fairly fierce at present, to attract new customers and to keep their existing customers from jumping ship. Unfortunately the smaller lenders just don't have the volumes required for them to be able to discount to this extent,” Mortgage Choice spokeswoman Kristy Sheppard has told Property Observer.

Sheppard confirms that Mortgage Choice brokers are able to work with its lender partners to offer discounted rates for borrowers, depending on the loan-to-valuation ratio.

“We do have discounts of 1% available at the moment through our panel. The lender's decision on the discount applied boils down to the customer's loan amount and LVR,” she says.

Her comments come as the level of competition among the major banks intensifies to such an extent that they appear willing to sacrifice profits to gain market share.

In the current mortgage discounting cycle, JP Morgan analyst Scott Manning says the “risk to earnings has clearly shifted to the downside in our view”. 

“Although discounting off headline rates is nothing new, the speed with which it has developed, and the depth at which it now is, is quite remarkable,” Manning says in a note to clients. 

“What is interesting is that firstly, this pricing competition seems to be driven by the current players (i.e., existing lenders looking to take market share from others, or to match price to retain market share), as opposed to new entrants coming into the market to erode the power of incumbents. Interestingly, the average discount is now actually above those levels seen pre-GFC at 90 basis points.”