Competition among lenders heats up
Spring is traditionally the busiest time of year in the property market and as the weather heats up, so does competition among lenders for customers in the $1.3 trillion mortgage market.
With interest rates remaining on hold at record low levels, lenders are already pricing their mortgages keenly. Lower funding costs are allowing lenders to offer more competitive prices for mortgages, the Reserve Bank of Australia noted in its September Financial Stability Review.
Price competition for new borrowers in the residential mortgage market has intensified with lower fixed rates on offer and larger discounts on advertised variable rates available to a broader range of borrowers, the Financial Stability Review noted.
In this environment, lenders are turning to other weapons in the war for new customers: incentives such as vouchers, fee waivers and upfront cash bonuses.
NAB announced in late September that it would give home loan customers a $1000 gift card when they took out a principal and interest mortgage for $300,000 or more between September 22 and October 31, 2014 and drew down on the loan by January 30, 2015.
NAB group executive product and markets Antony Cahill said spring was the strongest season for home loan applications in 2013 and 2012 and the gift-card was aimed at winning customers during the busiest time of year for home-buying.
The four big banks – NAB, Commonwealth Bank, ANZ and Westpac – control about 80% of the mortgage market and home loans are important to their businesses with around three quarters of bank loans used for housing. But it's not just the big four using non-interest rate measures to compete.
Macquarie Banks offers a loan that rewards borrowers with Qantas Frequent Flyer points, for example. Customers can earn up to 160,000 Qantas Points with a $500,000 home loan in the first five years.
Six lenders have cash-back offers for home loan customers, according to research that comparison website finder.com.au conducted for Property Observer. These include NAB, Newcastle Permanent and Commonwealth Bank, which are all offering up to $1,000 cash back. Heritage Bank and Homeloans.com.au are offering $600 and Austral Mortgage is giving back $500.
Eleven lenders are offering to waive fees for new home loan customers, including St George Bank, Resi and ING Direct, according to finder.com.au.
Many of these promotions are for a limited time to attract new borrowers, finder.com.au money expert Michelle Hutchison says.
"We're not surprised by these promotional offers available right now because we usually see an influx of incentives at this time of the year," Hutchison said. "It's currently mortgage season during spring, which is traditionally the busiest time of year to buy, sell and refinance so the home loan market is in a spin to try and take advantage of the high demand."
Hutchison warns home buyers and those who are looking to refinance to look beyond promotional offers when comparing mortgage products.
"Make sure you compare the cost of the loan including the interest rate you will receive and all the fees involved to make sure the costs don't outweigh any incentives offered," she says.
Macquarie Bank is a corporate client of the writer.