Mortgage discount wars unsustainable: JP Morgan

Larry SchlesingerDecember 8, 2020

The major banks will struggle to continue to offer discounted mortgage rates in an environment of low credit growth, according to J.P. Morgan/Fujitsu’s Australia Mortgage Industry Report.

Report author Scott Manning says while the current discounting off headline rates is not a new phenomenon, “the speed with which it has developed, and the depth at which it now is, is quite remarkable”.

But he says the current pricing is largely being supported by improving deposit spreads, which would not be sustainable in periods of low credit growth, particularly as offshore wholesale funding markets remained challenging.

“We believe the current pricing is about as competitive as it can get prior to diluting profitability. In this type of environment, retaining existing higher margin customers is imperative,” he says.

The report forecasts system housing credit growth to remain at “mid-single digits” over the coming years, compared with the mid-teen growth rates experienced before the GFC.

Housing credit growth has continued to soften over the last 12 months, driven by a range of factors including ongoing weak business and consumer confidence and concerns over global growth and the European sovereign debt crisis. The average three-month annualised growth rate for housing credit was 6.5%.

Earlier this week, NAB head of business banking Joseph Healey claimed the bank was not been adversely affected by its mortgage discounting battle with its major rivals.

The major banks are offering discounts of about 1% to some customers through mortgage brokers and higher through bank branches.

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer

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