Rate cut holdback 'helps' competition
Market watch top headlines
Australia's big banks have actually helped competition in the mortgage market by refusing to pass on rate cuts in full, a new report says.
But the housing market and lending growth are still expected to remain weak in the year ahead, forcing lenders to work harder to keep and win customers, the 2013 Deloitte Australian Mortgage Report has found.
Australia's major banks, which have strengthened their grip on the mortgage market since the global financial crisis, have sparked outrage by not passing on in full recent rate cuts made by the Reserve Bank of Australia.
However, Deloitte banking partner Graham Mott says with high borrowing costs and tight competition in a moribund market, the big banks' actions have helped smaller lenders get into the game.
"Non-banks now have the opportunity to make a profit in the prime mortgage space," Mr Mott said at the launch of the report on Monday.
He said less than a year ago the cost of wholesale funding - the money lenders source for mortgages by borrowing overseas - was too high for non-bank lenders to borrow at profitable rates.
"The credit spread is widening through the activity that the major banks have taken - effectively, not passing on the full cash rate changes has given the non-banks room to play," he said.
However the slim profit margin of 20 basis points - or 0.2 per cent - was vulnerable to any shift in sentiment, particularly with Europe in such a tenuous economic state.
"So non-banks are viable but they're still being pretty cautious," Mr Mott said.
The Deloitte report summarises the findings of a roundtable discussion with representatives of major lenders, including Commonwealth Bank head of mortgages Clive van Horen, Westpac head of mortgages Nick Bateup, Mortgage Choice chief executive Michael Russell and Firstfolio chief executive David Hancock.
The panel of 10 lenders concluded that growth in the mortgage market would be slower in 2013, with total loans growing around five per cent a year, compared with an annualised growth rate of 15 to 20 per cent a decade ago.
Property prices were expected to grow only by one to five per cent.
Deloitte financial services partner James Hickey said major banks would continue to dominate the mortgage market in the year ahead but the challenge would be to maintain existing customers and "up-sell and cross-sell" other products to them to maintain profitability.
"The margins that you would generate on a new customer, having to pay a larger discount to get that customer in a highly competitive environment and the cost of funding in the current wholesale markets would produce a lower return than an existing customer," Mr Hickey said.
"It certainly is important to bring new customers in the door but it's a balance which the banks are having to navigate at the moment."
Peter Trute, AAP Senior Finance Writer