Price war unsustainable

Speaking to The Adviser, Advantedge’s Brett Halliwell said lenders will have to stop slashing rates at some point as they are cutting into their own profit margins.

Lenders across the board have butchered mortgage rates in a bid to win share of a flagging mortgage market.

The battle is currently raging the hottest across fixed rate pricing.

Over the last two months, almost all of Australia’s lenders have slashed the interest on their fixed rate products, with CBA, ANZ, Westpac and NAB carving up to 20 basis points off their respective fixed rates.

Variable rates have also seen heavy discounting, with Adelaide Bank cutting 10 basis points off its variable rate products just last week.

Not to be outdone, CBA announced last month that it would beat any hot mortgage offers advertised by the other majors over the month of October.

While it could take 12 months for mortgage pricing to normalise, Mr Halliwell said lenders would eventually have to stop competing so aggressively for market share.

“This is by far the most competitive market I have seen in a while,” he said.

“While the mortgage market is still growing, it is now growing at a much slower rate. Traditionally, the market has grown at an average rate of 12 per cent. We are now growing at 5 per cent, which means lenders have to compete more aggressively for additional market share.

“Eventually, within the lending market, lenders will need to make a return on their shareholders’ funds.”

Overtime, Mr Halliwell said he expects to see some of the current market competitiveness fade away.

“We will see the competitiveness change dynamic – whether that is in the form of rate rises outside of the RBA or the reintroduction of fees – the current dynamic will have to change.”