Mortgage profitability in Australia is at its lowest rate in more than four years, according to a report by UBS Securities.
According to the report, higher funding costs are causing the banks to lose money on new mortgages.
The Australian Banking Sector Update, compiled by UBS analysts Jonathan Mott, Chris Williams and Adam Lee, said once operating costs have been taken into account, banks could well have been losing money on newly originated mortgages for the past four months.
“Simply, the marginal cost exceeds the marginal revenue,” the report said.
The report claims that unless banks reprice mortgages or funding markets significantly improve, there is no direct economic incentive for the banks to continue to write new housing loans.
“We see this as a dangerous situation for both the banks and the broader Australian economy,” the report said.
The report also said that the ongoing debate about whether Australian banks should reprice their mortgage books according to the RBA’s cash rate decisions “is emotive and often not particularly well informed".