Major bank rate hikes good for competition, says broker

by Julia Corderoy20 Oct 2015
Westpac’s decision to raise mortgage rates – and the speculation that the other major lenders will follow suit – is a good thing for the market, claims one broker.

Graeme Salt, director of Origin Finance told Australian Broker Westpac’s decision to increase rates by 20 basis points could trigger further competition in the home loan market. 

According to Salt, the regulatory changes that Westpac cited for increasing interest rates – that the major banks must increase the amount of capital held against mortgages – already apply to the non-major lenders, giving them a competitive advantage. 

“The consensus is that everyone is expecting the majors to have a similar rise to Westpac, but given that the mid-tier lenders already operate in a tougher regulatory environment, you may actually now find a divergence in interest rates which will allow the mid-tiers to offer lower rates than Westpac and presumably the other major banks as well.”

Salt says it is likely that the non-majors will increase mortgage rates, however they will not need to increase rates by as much.

“Given the majors control 80% of the market, chances are that the mid-tier lenders can probably afford to increase their rates. However, at the same time, they can still afford to maintain a competitive advantage," he told Australian Broker.

“I personally would be very happy if I could then offer a competitive offering from a mid-tier lender with a renowned brand, and my client would also be very happy with that.”

The increased competitive advantage of the non-majors will also directly benefit brokers, says Salt, as it is typical that smaller lenders rely on third party broker distribution.