Bank Rate Rises to Trigger Bidding War Over Property Borrowers

Lenders are expected to start poaching rivals’ customers and aggressively target best new borrowers in response to higher standard variable rates being rolled out by three major banks from next week, according to bankers and analysts.  “A huge disparity is emerging between rates for new and existing customers, which  gives more incentives for new and existing borrowers to go elsewhere,” said Melos Sulicich, chief executive of ASX-listed MyState, a financial services company.

There’s a new dynamic between the big four.”Smaller lenders are offering standard variable rates about 100 basis points cheaper than their big three competitors after recent rate rises, particularly for new home buyers, which means thousands of dollars a year in savings for a typical borrower.   Banks are juggling the rising cost of funding, falling numbers of new borrowers, tougher serviceability and income requirements and intense competition from credit unions, mutuals and building societies.

About one million existing owner-occupied property buyers are estimated to be ready to switch to a cheaper rate with a new borrower, according to analysis by Martin North, principal of Digital Finance Analytics, an independent analyst.

The remaining two million are roughly split between those who would not qualify for a switch under the prudential regulator’s tougher new lending requirements, or remain loyal to their existing lender. “The only game in town for lenders wanting to grow their books is to leverage off rusted-on relationships between existing borrowers and their lenders. This is about fighting over the corpse of existing borrowers,” Mr North said.

“Borrowers who may have been comfortable to ride the variable rate wave may now look to fix their interest rates in order to protect against additional rate rises,” said Susan Mitchell, chief executive of Mortgage Choice, the nation’s third largest network of mortgage brokers.

A comparison of big four typical variable rates and borrowing packages – that include features such as  home insurance and credit cards – reveals borrowers have a wide range of rates and special offers when choosing between the lowest standard variable rates, packaged variable rates and three-year fixed rates.