Falling Mortgage Applications Could Increase Bank Competition
Australia's mortgage market may be entering a more competitive phase.
Recent bank data reported in financial-market coverage indicates that home-loan demand has weakened, with National Australia Bank's Australian home-loan applications falling 15% in the June quarter compared with the March quarter. Westpac has also reported a sharp decline in investor applications following changes announced around the federal budget.
For banks competing to maintain their share of the mortgage market, fewer applications can mean greater pressure to attract new borrowers.
And for homeowners, that creates an important question: could weaker mortgage demand give borrowers more negotiating power?
Why Are Mortgage Applications Slowing?
Mortgage demand can change for many reasons.
Higher borrowing costs can reduce borrowing capacity, while affordability pressures may cause potential buyers to postpone purchasing decisions. Property investors may also reconsider their plans when tax, regulatory or economic conditions change.
When fewer people apply for mortgages, lenders still need to compete for the customers who remain active.
That competition can create opportunities for borrowers.
Banks Still Want Your Business
Banks generate significant revenue from residential mortgages, so attracting and retaining quality borrowers remains important.
When application volumes decline, lenders may respond by making their products more competitive.
That could include:
Adjusting selected interest rates
Offering sharper pricing to certain borrowers
Introducing refinancing incentives
Improving loan features
Negotiating rates with existing customers
Some lenders have already adjusted selected new-loan rates as competition for borrowers intensifies.
This is why borrowers shouldn't assume that nothing changes unless the Reserve Bank of Australia changes the cash rate.
The RBA Isn't the Only Factor Affecting Your Mortgage Rate
It's easy to think of mortgage rates as simply following the RBA cash rate.
The relationship is more complicated.
The cash rate is an important influence on lenders' funding costs, but banks also consider competition, funding conditions, customer acquisition strategies, risk and profitability when determining mortgage pricing.
As a result, individual lenders can change selected home-loan rates even when the RBA leaves the cash rate unchanged.
For borrowers, this distinction is important.
You don't necessarily need an RBA rate cut for a better home-loan deal to become available.
Could Borrowers Have More Negotiating Power?
Potentially.
When lenders are competing for fewer applications, borrowers with strong financial profiles may find themselves in a better position to compare and negotiate.
For example, an existing homeowner could contact their lender and ask whether a more competitive rate is available.
If the answer isn't satisfactory, they could compare alternatives from other lenders.
Borrowers with stable income, good repayment histories and suitable loan-to-value ratios may be particularly attractive to lenders.
However, the best option will always depend on individual circumstances.
Why Refinancers Should Pay Attention
This environment may be especially relevant for homeowners who haven't reviewed their mortgage recently.
A borrower who took out a loan several years ago could still be paying a rate that was competitive at the time but no longer represents good value.
A home-loan review could identify opportunities to:
Negotiate with the existing lender
Secure a more competitive interest rate
Refinance to another lender
Access better loan features
Restructure debt
Improve monthly cash flow
Importantly, refinancing isn't automatically the right decision.
Exit costs, application fees, valuation costs, loan features and the long-term financial impact should all be considered before switching lenders.
Don't Assume Loyalty Gets the Best Deal
Remaining with the same bank can be convenient, but loyalty doesn't necessarily guarantee competitive pricing.
Banks frequently use attractive offers to win new customers. Existing customers may not automatically receive the same pricing.
That's why periodically reviewing your mortgage can be worthwhile.
Even if refinancing isn't necessary, knowing what competing lenders are offering can provide useful information when negotiating with your existing bank.
What Should Homeowners Do?
Rather than trying to predict exactly what the RBA or individual banks will do next, homeowners can focus on what they can control.
Start by checking your current interest rate, repayments, fees and loan features. Then compare your loan against suitable alternatives currently available.
Ask yourself:
Is my rate still competitive?
Do my loan features still suit me?
Could another structure improve my cash flow?
Would refinancing actually save money after costs?
If you don't know the answers, a home-loan review can provide greater clarity.
The Bottom Line
Falling mortgage applications aren't necessarily good news for banks, but they could create a more competitive environment for borrowers.
With lenders competing for a smaller pool of customers, some banks may sharpen selected rates or offers to attract new business.
Most importantly, borrowers don't necessarily have to wait for an RBA rate cut to explore better options.
If you haven't reviewed your mortgage recently, now could be an opportunity to compare the market, speak with your existing lender and determine whether your current home loan is still competitive.
At LNO Mortgages, we can help you review your existing loan, compare suitable options and understand whether refinancing makes sense for your circumstances.
General information only. This does not constitute financial or credit advice. Lending criteria, fees and individual circumstances apply.
