The big banks are stepping up efforts to lure customers who are buying a home to live in, confirming a growing shift in the competitive environment as the regulator cracks down on lending to property investors.
“At the end of the day, no lender wants to miss book growth so if they can’t get it on investment (loans), they’ll chase owner occupied,” John Flavell, the chief of Mortgage Choice, one of the nation’s biggest brokers, said yesterday. “They’re going pretty hard.”
Last month Westpac’s subsidiaries, including St George, began offering a $2000 cashback for owner-occupied mortgages and refinancing. The deal topped ANZ’s $1200 offer for owner-occupied loans and refinancing of more than $300,000.
Brokers said Westpac had also waived a requirement for customers to take out lenders mortgage insurance for owner-occupied loans with loan-to-value ratios up to 85 per cent, more generous than the usual threshold of 80 per cent.
Westpac this week also unveiled a $1500 cashback offer for investor loan refinancing.
Commonwealth Bank said yesterday it had made no recent changes to owner-occupied lending but had long had a $700 cash refinancing offer. National Australia Bank declined to comment.
Mr Flavell said all lenders were taking a more liberal approach to loan servicing criteria for owner-occupied borrowers than investors, plus offering “pretty sharp” rates.
In contrast, banks in recent months have moved to slow investor lending by tightening serviceability, cutting discounts and, most recently, jacking up borrowing rates by 20-29 basis points.
“If it’s owner occupied, principal and interest and a lower LVR, then they’ll go hard for it, and even in some of the higher LVR spaces, as long as it’s owner occupied and principal and interest, then they’ll go hard too,” Mr Flavell said.
The comments suggest competition is stronger than expected in the owner-occupied space, despite Deutsche Bank analysts this week telling clients there was little evidence of a “step-up” beyond “anecdotal” signs of increased discounting.
There have also been suggestions borrowers are being encouraged to apply for owner-occupied loans to get a cheaper interest rate, even if they are landlords.
At Commonwealth Bank’s full-year result last month, head of retail banking Matt Comyn predicted that competition for owner-occupied borrowers would heat up as the regulator more forcefully imposed its 10 per cent cap on investor lending.
According to analysts at Citi, all the majors are breaching the cap for the year ending July 31, led by NAB at 14.3 per cent, ANZ at 11.8 per cent, Westpac’s 11.7 per cent and CBA’s 10.1 per cent.
Ahead of a strategy update by Westpac chief Brian Hartzer on Monday, Citi analyst Craig Williams yesterday said “gaining better momentum in owner-occupied mortgages” was critical.
“A slowdown in Australian banking revenue growth and falling ‘main financial institution’ share has left Westpac in a vulnerable position with an overweight investor mortgage position and unbalanced positions across state-based markets,” he said.
Separately, Credit Suisse analysts yesterday said bank management teams must put a “renewed focus on productivity improvement” to protect dividends.
This article first appeared in The Australian Business Review.