Mortgage ‘churn’ between major banks on the rise

The latest JP Morgan Australian Mortgage Industry report, released yesterday, found that the number of refinancers looking to transact has continuously increased since early 2015, rising from 10 per cent to close to 35 per cent of the market.

Digital Finance Analytics (DFA) principal Martin North said the majority of refinancing deals are going to the major banks.

“A proportion of those refinancers refinanced with their existing lender, with around two-thirds of the loans actually going to another provider,” Mr North said.

“So there is churn between banks. That doesn’t necessarily create new value from a portfolio perspective but it is moving value between different lenders.”

Mr North noted that there are a “lot of very cheap deals out there at the moment well below 4 per cent”, particularly for owner-occupied refinance.

“There is a lot of activity to try and convince people to move from bank A to bank B and from bank B to bank A. So there is a lot of churn, a lot of cost and a lot of activity.”

Mr North said he was surprised to learn that only a small proportion of refinancing flow is going to the smaller banks.

“I expected for all the noise that has been out there that there would be a greater flow to the non-major banks. But in fact it is a relatively small proportion going there. There is a lot of churn between the majors and a little bit flowing to the non-bank sector,” he said.

JP Morgan banking analyst Scott Manning highlighted that the non-majors were tipped to gain market share late last year following the rate hikes by the major banks. However, this failed to eventuate after the non-majors decided to raise their rates as well.

“They chose to try and enhance returns as opposed to provide a different proposition to the consumer,” he said.

“Secondly, they don’t necessarily have the funding to back up that potential growth either. Major banks are still better rated, have a largely diversified pool of funding and cheaper access to credit.”

Mr Manning said volatility in funding markets could be squeezing Australia’s smaller lenders, particularly the non-banks who are reliant on the RMBS markets.

[Related: Borrowers prefer non-majors for refinancing]