The Commonwealth Bank has issued a round of interest-only rate cuts and the other major lenders are expected to follow suit.
The majors have been losing interest-only market share to smaller lenders after overestimating the impact of lending caps on their loan books.
The smaller lenders gained an advantage over the majors when the big lenders went hard on tightening the reins on interest-only lending to meet APRA’s 30 per cent lending cap.
With their recent round of interest-only cuts, the Commonwealth Bank look keen to re-establish their market share.
Montgomery Investment Management’s Stuart Jackson told Australian Financial Review the non-bank financial institutions (NBIFs) had gained the upper hand over major lenders.
“NBFI lending appears to have taken up the slack of property buyer demand,” he said.
“This is not great news because either the macroprudential restrictions put the banks at a competitive disadvantage to the NBFIs, resulting in ongoing reductions in market share, or the risks to the financial system that the macroprudential regulations are intended to fix are not addressed due to the shift in lending demand to the NBFIs.”
According to Canstar analysts, an average variable, owner-occupier rate offered by a big four bank is 52 basis points more than a similar loan to a NBFI for a $1 million loan with a 20 per cent deposit.
That gap is even bigger – 82 basis points – for the same loan to an investor.
While lenders may offer further rounds of interest-only rate cuts, it is worth noting they may also tighten other terms of the loan to soften the blow.