Banks move to end ‘mortgage wars’

Lenders are ditching key incentives and quietly raising rates despite the RBA keeping the cash rate on hold, with experts warning borrowers to perform a key check.

Lenders have been raising rates on their mortgage products over the holiday period despite no movement in the cash rate.

It’s a pattern that’s been described as an end of the “mortgage wars” – a period when banks were introducing enticing offers in the hope of luring new customers in the wake of last year’s cash rate hikes.

But with the banking sector now expecting the Reserve Bank to cut the cash rate later this year, mortgage experts said lenders were trying to improve their bottom line.

And that has meant quietly reeling in things like cashbacks and, critically, raising rates on some of their products.

Mozo banking and rates expert Peter Marshall said competition among lenders for new customers was beginning to subside.

Governor of the RBA Michele Bullock. The RBA kept the cash rate on hold in December but some lenders increased their rates anyway. Picture: Martin Ollman

“The home loan market in Australia is now shifting away from the intense competition of the mortgage wars,” Mr Marshall said in a Mozo column.

“Banks are withdrawing cashback offers, fee waivers, and other incentives and the expectation of a post-cliff surge in refinancing has dwindled.

“It now looks like lenders are now redirecting their efforts towards enhancing profit margins in the face of potential rate cuts at the end of 2024.”

Mr Marshall pointed to lending indicators from the ABS showing that, despite a small uptick in owner occupier refinancing in November 2023, lending has largely been declining since July.

Some of the biggest changes were in variable rate offerings.

Variable loan rates offered on banking products have marched upward, with some lenders hiking rates on some of their loan products by up to 30 per cent.

Some lenders raised their rates even though the Reserve Bank kept rates on hold in December.

Auswide hiked both in December 2023 and January 2024, taking their headline variable rate from 5.99 per cent a year to 6.09 per cent, despite no movement in the cash rate.

Mr Marshall said this should be a reminder for borrowers to watch rate movements from lenders, regardless of whether the RBA adjusts the cash rate.

“Borrowers should be checking their rates regularly, as banks are continuing to make these rate adjustments despite no movement from the RBA.”

Despite the drop in competition between banks for mortgages to add to their loan books, Mozo noted that fixed rates were showing a downward trend.

According to the Mozo database, 13 lenders cut fixed rates in January, albeit by about 10-15 basis points. And most were increasing the fixed rate term.

Source: Mozo analysis of Macquarie Bank fixed rate changes effective 25 January 2024, for Owner Occupier, Principal & Interest, LVR 70-80% loans. This comparison rate applies only to the examples given.

“The downward trend for fixed-rate options is making these home loan products increasingly attractive for mortgage holders,” Mr Marshall said.

“But borrowers need to consider the impact of locking in a comparably “low” rate now when the RBA is predicted to start cutting the cash rate later this year.”

Graham Cooke, head of consumer research and comparison group Finder.com.au, said the new banking climate was proving a hurdle for new buyers.

“It was a competitive market when rates first started to increase (in 2022) as the banks were trying hard to get new business. Now that’s starting to pull back.

“It’s difficult to track but there’s anecdotal evidence that banks are making it harder.”

Mr Marshall said existing mortgage holders on variable rates should continually check their rates as even the smallest changes could be costly.

“Though they may seem minor, small rate changes on a six or seven figure home loan can equate to thousands of dollars more in interest you’re paying in the long run.”