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When the RBA lifted the official cash rate in December by 25 basis points, few could have predicted the events that were to follow.
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Westpac was the first big bank to respond, raising its standard variable home loan rate 45 basis points – 0.2 per cent higher than the RBA cash rate hike.
Seeing an opportunity to capture market share, NAB opted to follow the RBA’s lead with a 25 basis point rise. Meanwhile CBA and ANZ sought the middle ground, lifting their standard variable rates (SVR) by 39 and 37 basis points respectively.
Advantedge’s general manager of distribution Steve Weston says the 27 basis point spread that now separates the majors is the largest in over a decade. And he says this is good news for the non-bank sector.
“The last time there was a spread like this was last century when CBA moved to match the rates of RAMS and Wizard, leaving the other majors behind,” Mr Weston says.
At 6.76 per cent p.a, Westpac’s SVR is priced the highest, while ANZ and CBA are not far behind with SVRs of 6.66 per cent and 6.61 per cent respectively.
NAB now offers the most competitive variable mortgage rate of the majors at 6.49 per cent.
Mr Weston says traditionally the majors have kept their rates fairly closely aligned.
“Rates move in cycles. So while we will see all of the majors eventually fall back in line with one another, I think we are going to have a period of difference, which is great news for the non-bank sector,” he says.
Indeed, many second tier and non-banks lenders responded to the RBA’s move with only nominal increases to their variable rates, presumably seizing the opportunity to tackle the majors head on.
Australian First Mortgage for example lifted its variable rate by 25 basis points to just 5.99 per cent, 77 basis points below Westpac’s offered rate.
Mr Weston says Westpac’s decision to raise rates significantly above the RBA cash rate effectively opens the door for non-bank lenders looking to re-enter the market.
“A wonderful opportunity currently exists for both non-banks and mortgage managers. They just have to make sure they make the most of this opportunity,” he says.
WHO Finance’s co-principal Michelle Coleman agrees that the variable rate spread between the majors is good news for the non-banks and second tier lenders.
“Westpac’s decision to raise its rates by 45 basis points will encourage non-bank lenders to believe that they can compete in the industry again,” says Ms Coleman.
But it seems the broking community is yet to be convinced. According to The Adviser’s most recent straw poll, only 17.4 per cent of the 390 brokers surveyed believed competition among lenders had improved, with an overwhelming majority – 80.3 per cent – saying it had not.
Ms Coleman says she is surprised by the result.
“While we haven’t seen a great deal of non-banks and second tier lenders make their mark on the industry of late, I believe it is starting to happen and we should see increased competition heading into 2010,” she says.
Although Ms Coleman’s sentiment is not widely supported by other brokers, the fact of the matter is, access to wholesale funds is starting to improve, which suggests it might be easier than first predicted for non-bank lenders to really penetrate the market and have an impact on competition throughout 2010.
