Smaller banks and non-banks to offer borrowers better mortgage deals in 2013: Deloitte

Borrowers are likely to get a better deal through a subsidiary brand of a major bank in 2013 or by going to a mutual bank or non-bank lender, according to the latest Deloitte Australian Mortgage Report.

This finding is based on sentiments of a roundtable discussion made up of senior executives representing banks, non-banks, mutual lenders, mortgage brokers and mortgage insurers.

The report forecasts that banks will still chase market share targets and “aggressively compete for whatever growth exists”, but it is likely that in 2013 the majors will use their subsidiary brands as the “more aggressive price competitor, so protecting their main brand and its margins”.

“To meet borrowers’ demand for lowest price, it is also likely that the majors will use their subsidiary brands at a more aggressive price point and so shift up a competitive gear,” says Deloitte financial services partner James Hickey.

This approach is already in evidence, with Westpac subsidiary St George currently promising to beat any advertised home loan interest rate offered by the four major banks.

The special offer is available until December 21 for new home loan customers, with a $1,000 rebate also available to help new customers cover the cost of purchasing their new home.

To take advantage of this offer, customers need to provide a copy of the relevant bank’s advertisement (print, radio or online) showing the interest rate being offered.

“I encourage people to look around, find the cheapest rate advertised by one of the four major banks then contact us, so we can offer them an even better rate,” says  Andy Fell, general manager of St George retail banking.

Unsurprisingly, the offer does not mention that St George is 100% owned by big four bank Westpac.

Westpac has a standard variable rate of 6.71% with St George offering 6.69%.

Other subsidiary brands of major banks offering better deals than their parent banks include NAB’s online offering UBank, consistently offering among the cheapest fixed and variable refinancing offerings.

Bankwest offers an online variable rate loan at 5.58%, compared with parent bank  Commonwealth Bank’s best offering (excluding one-year introductory specials) of 5.9%.

According to the Deloitte report, “price, and the level of discounts offered to the standard variable rate (SVR), will be a lever which banks use to tap into market share”.

The report also says that the current imbalance in market share power held by the major banks over smaller banks and non-bank lenders is unlikely to be resolved in 2013.

“The advantages which the majors have, through their stronger credit rating when raising funds, their scale in terms of operating cost efficiency, and their distribution reach, will continue to maintain the divide between them and smaller lenders.

“This is a justified reality in the market, and while calls for an inquiry into the banking sector have merit in terms of considerations of the impact of this on future competitiveness and innovation, smaller lenders should not expect government intervention in 2013 to tilt the balance in their favour," says the report.

But the report also says that smaller lenders “are and can continue to be successful if they play to their strengths (and understand their limitations)”.

“Key strengths are customer satisfaction, community engagement, member affiliations, and market and product specialisations and niches.

“They are limited in terms of competing with majors on a national scale, and by funding and capital constraints. These are realities which smaller lenders can use to their advantage when tailoring their business models.

Hickey says that while it is unlikely that major lenders will increase their risk profile in 2013, “there is opportunity for the smaller banks and non-bank lenders to leverage their risk appetite for ‘near prime’ borrowers”.