Banks grab market before raising rates

THE major banks are stealing as much market share from mortgage brokers as they can before putting up their variable-rate home loans.

Banks grab market before raising rates

THE major banks are stealing as much market share from mortgage brokers as they can before putting up their variable-rate home loans.

The banks raised the value of new home loans approved in October by 5 per cent, while the value of loans offered by non-bank lenders fell 16.2 per cent.

Both groups of home loan providers have been hit by the rise in funding costs as a result of the world financial turmoil from the US sub-prime market.

But the major banks have large retail deposits to draw on, and depend on the wholesale markets affected by the sub-prime turmoil for only about a quarter of their funding.

Deutsche Bank chief economist Tony Meer calculates that the market share held by mortgage brokers and other non-bank lenders has dived from 13.3 per cent to 8.2 per cent since July, with the banks raising their share by 5.2 percentage points to 84.9 per cent.

All the major banks have warned they would have to pass on some of the increase in their wholesale funding costs, which have risen by about 40 basis points on top of the two increases from the Reserve Bank since August.

So far, only the Adelaide Bank has raised the variable rate it charges agents by 25 basis points.

The first move among the majors is expected to come from either Commonwealth Bank of Australia or National Australia Bank, the two biggest mortgage lenders.

Housing finance approvals released yesterday show the mortgage market is still growing. Loans for the purchase of established homes rose by 2.5 per cent in October compared with the previous month, and now stand 20.5 per cent ahead of their level a year ago.

The Australian Bureau of Statistics survey was conducted before the November rate rise, but the speculation about higher rates in the lead-up to the election led more people to seek fixed-rate loans - up from 14.9 per cent of the total to 21.0 per cent since July.

But there has been no rush by people on floating rate loans to refinance their mortgages. The level of refinancing has dropped by 5.8 per cent in two months.

The rising rates have not deterred new home-buyers, who accounted for 18.7 per cent of the market. Investment property lending also grew, up by 2.9 per cent in October, and 27.8 per cent higher than a year ago.