SYDNEY (Reuters) – Competition for Australia’s lucrative A$2 trillion ($1.3 trillion) mortgage market is heating up, say bank chiefs, as hundreds of thousands of mortgage holders look to refinance fixed-term loans expiring over the next two years.
“It’s the most competitive market for mortgages that I’ve seen in my career,” Westpac Chief Executive Peter King, who started at the bank in 1994, said at the Australian Financial Review Banking Summit in Sydney.
“The amount of churn (means) you have to play or your book will shrink. It’s a market dynamic. It is one that is very good for the customer at the moment, and we’ll see where it goes in the future.”
Westpac is Australia’s third-largest mortgage lender, behind Commonwealth Bank of Australia (OTC:CMWAY) and National Australia Bank (OTC:NABZY).
Roughly A$300 billion in fixed-term loans written at low rates during the pandemic will expire this year and roll onto much higher variable rates. Australian banks have reported a pick-up in customers shopping around for cheaper mortgages, with some lenders offering cash payments to lure borrowers.
Pack leader Commonwealth Bank recently made pricing changes in a “very competitive” mortgage market, CEO Matt Comyn said at the same conference.
Rising wholesale funding costs at a time when banks had hundreds of billions to refinance could hit pricing on deposits, he added.
“Some of the pressures in and around funding… I think that will lift the intensity, all things being equal, around deposits,” Comyn said. “It may lead to some different decisions on pricing.”
After 10 interest rate hikes since May 2022, King said Westpac economists expect one more hike in 2023 before rates are cut in 2024.
However he said the most important question was “not so much where’s the peak, but how long are we staying there? How long are customers – for those that need help – how long are they going be experiencing peak interest rates?”
Westpac was looking across its portfolio for borrowers who might need help but the “macro statistics” remained healthy.
King said Australia’s banks were unlikely to experience a similar shock to the collapse this month of Silicon Valley Bank in the U.S. which had a loan book that was too concentrated on high-risk assets.
“They took a pretty big punt on interest rates and they got it wrong,” he said.
($1 = 1.4984 Australian dollars)