Are Major Banks Creating an Anti-Competitive Behavior Environment?

The mortgage lending industry is being challenged by the majors in various ways. They started by making accusations against mortgage brokers, changing the rules, and now by creating an environment of anti-competitive behavior.

The mortgage industry has responded with their own comments and accusations toward the majors regarding the recent interest rate hikes that are out of cycle. They have even accused one major bank of bait-and-switch tactics.

Westpac, Commonwealth Bank CBA and ANZ lifted their variable owner-occupier loan rates by 14, 15, and 16 points, which resulted in being critiqued for that change.

The ANZ was accused of bait-and-switch tactics by HashChing COO Siobhan Hayden after they increased their rates only five weeks after claiming they would be making reductions in home loan rates. She said she is “surprised” at this action due to the current culture of “scrutiny from the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry,” according to The Adviser.

Ms. Hayden commented, “It’s surprising that three of the major banks have increased interest rates in unison, despite being hauled over the coals in the recent banking royal commission. ANZ’s rate increase is particularly shocking, given it only just announced a rate reduction five weeks ago.”

She continued with, “During a period of clear upward pressure on wholesale funding costs, ANZ announced a 34-basis point reduction in owner-occupied lending for new customers only. Now, just over a month later, it has announced a 16-basis point increase to both residential and investor lending from 27 September. This seems like a classic bait-and-switch. Customer encouraged by ANZ’s rate reduction announcement on the 1st of August would rightfully now feel betrayed and manipulated by a ‘honeymoon rate’ seduction.”

The ANZ answered the accusation by saying they were only offering that rate reduction to new home loan customers and those discounted rates are still in place for eligible borrowers.

Ms. Hayden further accused that ANZ and other major banks of promoting “anti-competitive behavior” with such increases on borrowers.

COO added that the Commonwealth Bank reported an annual profit of $9.38 billion while “Australians are at risk of losing their homes” to higher repayment. These are the same people who cannot get bank approved for refinancing their home loans. “It’s an absolute shambles, and someone needs to take responsibility, “claimed Ms. Hayden.

She finished off by saying, “With NAB likely to follow suit, and smaller lenders such as Suncorp and Adelaide Bank already hiking up rates, too, there’s real concern that Westpac’s increase has trigged a landslide across the whole market. The anti-competitive behaviour of the big four is certainly something Scott Morrison should look into. It’s un-Australian.”

Sally Tindall chimed in with, “What this rate hike means is that the vast majority of variable rate home owners will now be shelling out more on their mortgage each month.” It’s not as if those payments aren’t already high enough.

Ms. Tindal also said, “NAB would do well to break free of tradition and find a different way to wear the additional expense.”

According to analyst Cameron Kusher from CoreLogic, these “out-of-cycle rate increases on owner-occupier mortgages” might put more pressure on the housing market, creating a decline in demand from property investors prompted by a large-scale closefisted regulation and stricter credit conditions.

Kusher said, “From a housing market perspective, the timing of the announcement of higher interest rates is an interesting one. After many years of strong value growth, Sydney and Melbourne housing is now well embedded in a downturn.”

Cameron commented, “Tighter credit conditions, higher mortgage rates for investors and interest-only borrowers and reduced affordability have already led to the falls of 5.6 per cent from the peak in Sydney and 3.5 per cent from their peak in Melbourne. This has occurred so far without higher interest rates for owner-occupiers paying off principal and interest; however, that is about the change.”

He also said the timing of these rate increases happened to be during the beginning of the “spring selling season”. Typically, lenders reduce their rates in the spring to encourage borrowers, but the rise in expenses leaves them no other option but to increase their rates.

The CoreLogic analyst claimed, “Higher mortgage rates have already driven a slowing of demand for investors over the past year. Although the magnitude of the mortgage rate increases announced is fairly small, it is likely that the higher mortgage rates will impact on housing market sentiment. It may end up further exacerbating the declines which are already occurring in Sydney, Melbourne, Perth, and Darwin and the slowing of value growth being experienced elsewhere.”

In conclusion, Mr. Kusher said that “Overall, this move seems likely to lead to a continuation of the currently weak housing market conditions over the coming months and may weaken the market further. From the lenders’ perspective, clearly they realise that the housing downturn is becoming entrenched and they are doing what they can to maintain profitability in the face of lower mortgage volumes.”

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