Current financial and economic trends point to a future ‘flurry’ of mortgage rate cuts by the banks, one leading financial analyst has said.
Going back six to nine months, there was a significant amount of discounting going which squeezed the margins of the banks in the last results season, Martin North, Principal at Digital Finance Analytics, told
Australian Broker.
“That’s changed now if you look at the last six months or so. There have been a number of interest rate rises out of cycle. The banks have used the alibi of interest only or capital lifting which is all partly true. But actually what they’ve been able to do is build a bit of a war chest.”
This means that the banks, particularly the larger lenders, have the capacity to target specific subsets of new customers with significantly below market rates, he said.
“I’m expecting to see a number of different propositions out there. Some of them will be made public. I’ve also noticed that some of the first home buyers who have obtained loans recently have been able to negotiate significant discounts off the headline rate.”
Future discounts will be applied predominantly to owner occupied borrowers and principal and interest loans, North added. However, he also predicted that banks would not be repricing their books and that existing borrowers would still be stuck with higher costs.
“They’re all now positioning to effectively find the next new business,” he said. “My expectation is we’ll see quite a battle over the next few months for new business from new borrowers and also from selectively targeting refinance.”
Higher margins from investors and lower funding costs are other reasons why the banks have a bit more room to move, North added.
Future rate cuts could also drive higher levels of refinancing, he predicted.
“Although refinancing has been drifting lower in the last three or four months, my mortgage surveys highlight that there is still a significant proportion of people who will be looking to refinance if they can reduce their monthly repayments.”
The rise in refinancing will also be driven by high household debt and mortgage stress with borrowers seeking ways to improve their financial situation.
“If borrowers can get a restructured deal from lenders that effectively reduces their monthly repayments, then that will be highly attractive. I would not be surprised to see refinancing take a little bit of an upward inflexion over the next few months.”
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