Lenders across Australia are seeing a 'dislocation' between their own mortgage rates and the official cash rate, hence eating away at their profit margins as competition continues to heat up.
Earlier this month, the Bank of Queensland hiked its variable rates for owners and occupiers due to increased competition and higher funding costs. UBS analyst Jonathan Mott labeled the move back then as 'unprecedented,' and potentially risky because frustrated existing customers may leave for cheaper deals elsewhere. However, this move led to a string of home loan rate hikes out of cycle with the Reserve Bank.
According to JP Morgan, refinancing has more than tripled over the last year, rising from 10 per cent in early 2015 to 35 per cent at present. Borrowers are now shopping for better rates.
"We're operating in a market that is probably as dynamic as it's ever been in terms of price points," said Matt Baxby, Bank of Queensland retail banking boss. "There's high awareness that better rates are on offer at any particular point in time so we need to maintain a price point that keeps us competitive."
James Hickey of Deloitte said that competition in the market is deepening. "It's a challenge to maintain your front book competitiveness and your back book stability. I think we've seen a lot of groups further segment their portfolio further into discrete components so they can separately price different parts of their portfolio with far more targeted pricing strategies to attract new customers and keep back book retention," he said.
The variable rates for Bank of Queensland's owner-occupied loans are now at 5.86 per cent while investor loans are at 6.28 per cent.
It can be confusing to know whether to get a variable rate or fixed rate mortgage, and what features are important. That's why it's important to not only check the right rates, but make sure that you're getting the right features in your home loan. Get help choosing the right home loan