Faster bank home loan approval times the next incentive in battle for mortgage market share: Lendi, RateCity

Faster home loan approval time is the next incentive lenders are offering as they put in ‘huge efforts’ to keep borrowers happy as the mortgage market heats up.

‘Retention by the banks that are trying to protect against (mortgage) refinancing (away from them) is ferocious. Their retention efforts are huge.’ Picture: NCA NewsWire / Gaye Gerard

The battle for home loan market share will be less interest-rate driven in 2022, as banks look to improve turnaround times, prepare for slower rates of mortgage credit growth and fight harder to retain customers.

Loan turnaround times will be a big focus this year, as banks including ANZ seek to fix mortgage processing bottlenecks after struggling to keep up with demand. Macquarie Bank is among those capitalising on its reputation among mortgage brokers for quick processing times.

The competitive dynamics are also being driven by cashback offers. There are 25 banks and lenders offering mortgage customers – particularly those that refinance – cash back for shifting their home loan over, according to RateCity data. That is more than double the 12 banks and lenders with such promotions prior to the Covid-19 pandemic taking a grip on Australia.

But with three of the major banks – bar ANZ – raising fixed interest rates four times over the past three months, due to higher funding costs, the focus is shifting to variable rate loans. ANZ has lifted rates on fixed-rate mortgage three times in the past three months.

In 2021, the banks had the benefit of ultra-cheap funding from the Reserve Bank as it sought to shore up the economy’s defences to the pandemic.

That saw a lot of fixed rate mortgages dip below 2 per cent for the first time.

Lendi Group chief executive David Hyman said the median variable interest rate secured by customers for loans settled on the Lendi platform over the last two months was 2.31 per cent.

Lendi, which last year merged with Aussie Home Loans, expects home loan turnaround times will be keenly assessed by borrowers in 2022.

“Processing times have fluctuated significantly over the last two years due to increased demand, particularly for refinances, in the ultra low-rate environment, and Covid-related disruption,” Mr Hyman said.

“However, many lenders have been working hard to improve their SLAs (service level agreements) because the customer experience is just as important as price to many borrowers.”

Gerard Hansen, principal of mortgage broking firm FinVu, said demand for home loans was “still robust”, particularly as some borrower demand had flowed over from last year.

He had noticed, though, many large banks ramping up their customer retention efforts.

“Retention by the banks that are trying to protect against refinancing (away from them) is ferocious. Their retention efforts are huge,” Mr Hansen said.

RateCity research director Sally Tindall said during a federal election year the issue of housing affordability was bound to be a policy debating point.

“It is an election year. They, the government, know they have a housing affordability issue that they need to address,” she added.

“They are very conscious of the fact that they’ve got this problem and they’ll have to say something about it.”

In an attempt to cool the housing market and curb levels of indebtedness, the prudential regulator raised the buffer rate that banks have to add to a borrower’s interest rate to assess whether they can repay, to 3 per cent from November, from 2.5 per cent. Banks either use the buffer plus the prevailing interest rate on the mortgage, or a floor rate to assess a loan’s serviceability, whichever is higher.

Analysts assessing the latest Australian Prudential Regulation Authority data, highlight clear winners and losers in the battle for mortgage market share.

“Housing loan growth was circa 8 per cent annualised in the month of November, broadly in line with the 7 to 8 per cent range since May. However, there were significant differences among the banks we cover: Commonwealth Bank, NAB and Bank of Queensland grew above system, but Bendigo and Adelaide Bank, Westpac and ANZ grew below,” Morgan Stanley analyst Richard Wiles said.

He expected a slowdown in housing credit growth across the sector this year.

“Our forecasts assume that the major banks’ housing loan growth slows to an average of circa 4.5 per cent in 2022 (or 5 per cent excluding ANZ), due to a combination of macro-prudential measures, higher rates on fixed-rate loans, the potential for earlier RBA rate rises and more modest house price expectations.”

JPMorgan analysts have warned of further pressure on retail banking returns due to funding costs and competition.

“Advertised mortgage rates were unchanged for the majors, while only a few second-tier banks we monitor lowered their rates, such as Virgin Money and AMP. We remain cautious on the outlook for mortgage margins given Westpac’s second-half 2021 exit net interest margin, still strong mortgage industry returns and increased competition from second-tier players despite the term funding facility program ending,” they said.

Virgin Money, owned by Bank of Queensland, is offering $3000 cash back to new mortgage borrowers or those that are refinancing as it looks to boost market share. Westpac and Suncorp are also among lenders offering $3000 cash back, but only for loans that are refinanced to them.

Banks have to balance competing for loan business with managing returns. Banks including Westpac were punished by investors last year for a sharp drop in net interest margins, what they earn on loans minus funding and other costs.

In some good news for the sector, RBA data showed business loan growth accelerating at 7.3 per cent in the year to November 30, the fastest annual clip since April 2016. Business credit pipped annual growth in home loans for the first time since July 2020.

Morgan Stanley noted that while the pandemic had spurred many households to increase deposits and reduce debt, household deposit growth was moderating.

On ­average households are almost four years ahead on their mortgage payments, with a record $50bn funnelled into offset accounts over the past two years.