Despite their market dominance, the major banks have not fared well in a new report evaluating the best-value mortgages in the market.
Canstar’s Home Loans Star Ratings 2018 report, which analysed 5,394 property loans from 126 lenders, found that, in line with other market research, smaller lenders offer more competitive prices than the big four banks.
Of the 5,300-plus loans that were evaluated, more than 40 per cent, or 2,202, failed to meet the financial services comparison site’s eligibility criteria.
Further, of the loans that were found to be eligible (3,192), just 10 per cent received a five-star rating, according to Canstar.
The big four banks were largely absent from the top 10 per cent, with National Australia Bank, which was the only major bank to keep its interest rate on hold recently, receiving a single five-star rating in the category of investment fixed home loans.
The other major banks did not receive five-star ratings in any of the categories, which include home lender, variable home lender, fixed home lender, investment home lender, investment variable home lender, investment fixed home lender and line of credit.
The Productivity Commission’s report on competition in the Australian financial system, which was handed to the government on 29 July, argued that the major banks have “sustained prices above competition levels, offered inferior-quality products to some groups of customers, subsumed much of the broker industry and taken action that would inhibit the expansion of smaller competitors in some markets”.
With three of the big four banks recently hiking rates by 14 to 16 basis points out of cycle following a series of rises by non-major lenders – including Macquarie Bank, AMP, ING, Bank of Queensland, Heritage Bank and Auswide Bank – Canstar’s group executive of financial services, Steve Mickenbecker, said that further increases can be expected, especially in response to swelling wholesale funding costs.
“The pressure will be flowing through to the profit margins and eventually most are likely to follow with rate hikes,” Mr Mickenbecker said.
“Whether you choose to move lenders or not, it’s a good time to consider fixing your loan’s interest rate to future-proof repayments for two or three years while they are manageable.”
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