The non-major banks are enjoying their highest share of new mortgage lending in 12 years, providing further evidence that more customers are comfortable switching financial products.
Australian Finance Group’s (AFG) latest quarterly report shows that non-major banks accounted for 45.9 per cent of lodgements which is the highest since 2007.
AFG chief executive David Bailey says: “From the perspective of loan volumes, we are not approaching a 50/50 split between the majors and non-majors. Something unheard of as little as five years ago.”
Macquarie Bank and AMP are the leaders among the non-majors as their market share has doubled in the past 12 months at 11.36 per cent and 3.58 per cent respectively.
The major lenders’ market share has consistently dropped since October last year where it was 58.96 per cent to its current share of 53.95 per cent in September 2019.
This echoes the latest report by Deloitte Access Economics, commissioned by the Australian Banking Association (ABA), showing that 2.8 million customers switched to new banks or financial providers in the past year for home loans, credit cards and transaction accounts.
ABA chief executive Anna Bligh says the numbers speak for themselves with the 2.8 million representing 15 per cent of transaction account holders, 10 per cent of credit cards and 5 per cent of mortgages.
Consumers are actively looking at their options with 48 per cent of transaction account holders, 47 per cent of credit card holders and 57 per cent of mortgage account holders have looked at other banks’ offerings.
Bligh says: “Whether you’re looking for a new home loan, a credit card or a transaction account, competition for a customer’s business is fiercer than it has ever been.”
Despite the large customer shift, most customers are satisfied with their bank product.
The survey finds that 79 per cent of everyday transaction, 75 per cent of credit card and 67 per cent of mortgage owners say they are either ‘very satisfied’ or ‘satisfied’ with their providers.
Interestingly, switching is not as high for mortgages as it is for everyday transaction accounts, despite mortgage owners being the least satisfied with their current provider.
Most respondents say that price factors such as fees and interest rates were ‘very important’ or ‘important’.
Almost nine in every ten mortgage owners consider price factors to be of importance compared to 74 per cent of everyday transactions owners and credit card owners at 76 per cent.
This suggests that there might be less of an issue than what Treasurer Josh Frydenberg is saying after directing the Australian Competition and Consumer Commission (ACCC) to undertake an inquiry into the pricing of residential mortgages.
The inquiry will investigate how banks make pricing decisions, including passing on movements in the official cash rate, barriers that may prevent consumers from switching lenders and differences in the prices paid by new and existing customers amongst others.
The survey found the most important driver of switching was finding a better mortgage which provided an offset account or allowed consumers to fix a part of their loan (21 per cent).
Only a quarter of mortgage owners who considered other banks’ mortgage options have not refinanced with another bank because they are comfortable where they are and only 5 per cent of mortgage owners have refinanced in the last 12 months.
Interestingly, the survey finds that consumers have overcome barriers to switching as more than four in five everyday transaction account owners, three in four credit card account holders and 55 per cent of mortgage owners did it with ease.
Although there are perceived barriers to switching, 59 per cent of respondents who considered switching ultimately chose to stay because they are comfortable with their current bank.
Westpac chief executive Brian Hartzer defended its rate cuts and says it’s an important opportunity to discuss the facts on mortgage pricing.
Hartzer says: “Pricing decisions require banks to take into account a number of factors, particularly as the cash rate heads towards zero. In particular we have to manage the net interest margin – that is the difference between deposit and lending rates. As part of this process we take into account the interest of borrowers, depositors and shareholders who provide the equity that enables us to operate.”
ACCC chair Rod Sims says: “We are looking forward to examining how banks make these crucial decisions. It will be important to understand and examine the different factors that financial institutions take into account when setting their prices.”
The Treasurer emphasises that the incoming Consumer Data Right will assist consumers in finding more suitable and personalised banking products.
ABA’s Bligh says: “The message to all Australians is if you aren’t satisfied with your home loan, credit card or other product it pays to shop around to get the best deal possible.”
The ACCC will deliver a preliminary report by 30 March 2020 and a final report by 30 September 2020.