A new report argues that recent pricing and policy changes in the Australian mortgage market have little to do with regulatory forces but are more an effort by the banks to protect their margins and profits.
Released this week, The Property Imperative Report V report from Digital Finance Analytics (DFA), with results from the September 2015 DFA Household Survey, includes a special feature on current mortgage pricing dynamics.
The report examines “the real factors at play, compared with the hyperbole about the banks being forced to reprice investment loans thanks to regulatory intervention, and to show they are being good corporate citizens”.
“Actually, we think it has much more to do with competitive pricing dynamics than it has to do with regulatory change, and APRA is providing a convenient alibi for quick significant changes,” the report said.
It is widely believed that the primary drivers of a two-tiered mortgage market are higher bank capital requirements and a slowdown in investor and interest-only lending in an effort to improve responsible lending.
These efforts have been spearheaded by the Reserve Bank of Australia, APRA and ASIC.
Martin North, DFA principal, who authored the report, said that the end result is that investment loan pricing is up, investment loan discounts are down, and rates and special offers on owner-occupied loans are making them more attractive.
“Lenders are clearly cutting discounts for investors, while going out of their way to attract new and refinancing owner-occupiers,” Mr North said.
“But it is worth highlighting that pretty much all lenders, majors and regionals, are following similar pricing changes, using the APRA changes as the justification.
“However, rather than it relating to the advanced IRB capital changes, which do not come into force until 2016 and are only applicable to the majors and Macquarie – or the 10 per cent speed limit on investment loans – it is really an attempt to push home lending hard in the owner-occupied sector.”
Banks are still looking to lend, but their business mix and pricing will be different, Mr North argues in the report.
“Indeed cheap owner-occupied loans will be subsidised by reduced discounts and higher prices on investment loans,” he said.
“Because most lenders are following suite, competition is not working in favour of borrowers, or smaller lenders, as current banking structures are enabling lenders to protect their margins and profits.”