Discharge practices worsen as brokers lash banks

However, it also contained pointed feedback that the process of retaining borrowers had become a major source of friction between lenders and the broker channel.

One anonymous broker said the approach taken by some banks had become particularly troubling, claiming lenders were using retention conversations to bypass the original loan writer.

“The retention piece is dreadful. The banks are contacting the clients directly and offering them internal refinances to take the broker out of the picture. That’s not OK,” the broker said.

Another broker suggested that customers and brokers were still being made to signal an intention to leave before lenders would put their most competitive rate on the table.

“Generally hard to get new-to-bank rates for existing clients when doing retention. Only after a discharge is lodged will a bank offer their best rates,” the broker said.

The comments sit against a broader improvement in retention pricing.

The equity research house said banks had spent recent years sharpening their focus on defending existing mortgage books as well as attracting new lending.

It added that most banks were now offering retention pricing within about 10–20 basis points of new-to-bank pricing, a level brokers said was often enough to deter borrowers from refinancing.

Retention gap narrows

The survey found that ING Bank had the narrowest reported difference between retention pricing for existing borrowers and new-customer pricing, at 11 bps.

HSBC also recorded an 11-bp gap, followed by Macquarie Bank at 12 bps.

At the other end of the rankings, Bank of Queensland (BOQ) recorded a 23-bp gap, followed by CBA at 21 bps and NAB at 19 bps.

For owner-occupier loans, Macquarie said Reserve Bank of Australia (RBA) data showed that the front-to-back book pricing gap had fallen to less than 5 bps. The gap was higher for investor lending, it said, but had also reduced materially.

Macquarie said the result should be lower refinancing and repricing activity, although the proportion of customers renegotiating their rates still edged higher to about 30 per cent, from roughly 27 per cent a year earlier.

The survey nevertheless suggested that borrowers remain willing to challenge their lender on price, and that banks’ retention teams remain central to their ability to protect mortgage balances.

On the broader question of rate and offer competitiveness over the preceding three months, ING was rated strongest by 93 per cent of surveyed brokers.

Macquarie Bank followed on 87 per cent, while ME Bank was next on 78 per cent.

BOQ ranked last, with 9 per cent of respondents rating it among the most competitive, followed by CBA on 14 per cent and NAB on 15 per cent.

When pricing and retention policy settings were considered together, Macquarie said ING, Bankwest, and Bendigo Bank had made it easiest to retain customers, while CBA and NAB were described as somewhat more difficult.

Bankwest, ING, and Westpac were rated as having the best retention policies for negotiations, while BOQ, AMP, and NAB ranked weakest.

Refinancing pressure persists

The report also found that serviceability had emerged as a key constraint on refinancing at a time when borrowers are increasingly looking to lower repayments.

Several brokers said the 3 per cent serviceability buffer was preventing some borrowers with sound repayment histories from moving to a lower-rate lender.

“The 3 per cent serviceability buffers in a high rate environment is making refinances difficult,” one broker said.

Another broker argued that standard serviceability calculations could prevent a borrower from switching even where the proposed loan would improve their cash flow.

“Banks can be conservative with servicing calculations, particularly with the 3 per cent APRA serviceability buffer, which can prevent borrowers from obtaining finance even when their actual cash flow and repayment history demonstrate that they can comfortably meet the proposed repayments,” the broker said.

A separate broker said: “Some existing borrowers can comfortably demonstrate a strong repayment history at their current interest rate, yet may still struggle to refinance to a lower rate because they need to pass a completely new serviceability assessment. In some cases, refinancing would actually improve their monthly cash flow and reduce risk.”

Credit outcomes divide lenders

The survey also found wide variation in credit outcomes.

Macquarie Bank was rated strongest, with 81 per cent of applications reportedly receiving an unconditional approval and 17 per cent receiving a conditional approval.

Bankwest recorded 48 per cent unconditional approvals, 36 per cent conditional approvals, and 17 per cent requiring more information, while ING Bank recorded 44 per cent unconditional approvals, 40 per cent conditional approvals, and 16 per cent requiring more information.

BOQ, HSBC, ME Bank, and AMP were identified as having the weakest credit outcomes.

Macquarie said major-bank willingness to issue unconditional approvals was led by Bankwest, followed closely by NAB, CBA, and Westpac.

ANZ, however, was described as one of the more difficult lenders for approvals among the key banks.

“ANZ continued to be on the more difficult end of loan approvals, one of the lowest of the key lenders. Comments from brokers frequently suggest that offshore credit assessment processes make ANZ loan applications more difficult than peers, which appears to be highlighted in this survey statistic,” the report said.

Despite the concerns around assessment friction, some brokers said lenders were becoming more pragmatic on credit policy and investor lending.

“Banks are generally loosening credit policies and becoming more ‘common sense,” one broker said.

Another broker said lenders were looking for ways to improve investor borrowing capacity.

“Lenders are finding ways to improve investors’ borrowing capacity to increase investor demand,” they said.

A third broker said: “I think generally slightly more relaxed credit policy, more lenders making common-sense decisions, more one-touch unconditionals.”

That optimism was tempered by a view that lower volumes had led to greater scrutiny of applications.

“My sense is that lower lending volumes have resulted in more friction in the assessment process. With more time available, relatively immaterial items that would previously have been worked through pragmatically are increasingly being questioned,” a broker said.

One broker also called for greater consistency in lender treatment of investment applications following changes to negative-gearing settings.

“With changes to negative gearing, there needs to be more consistency around serviceability standards. Different lenders have different results for both existing investments and proposed new purchases under the new rules for existing dwellings,” they said.

Turnaround time remains decisive

Macquarie said Bankwest had recorded the largest improvement in initial application pick-up times, despite already being among the faster lenders, while Westpac was the next strongest improver.

Among the major banks, CBA and Bankwest remained quickest, followed closely by Westpac and St George.

Meanwhile, NAB’s average time to first pick-up had worsened year on year to about four days, while ANZ and Suncorp remained the weakest of the major lenders.

Macquarie also said broker anecdotes pointed to uncertainty around the migration process between ANZ and Suncorp Bank.

[Related: Number of borrowers unable to refinance spikes]