Is mortgage lending competitive in Australia?

A previous Savvy analysis found a steady increase in mortgage debt since 2011, topping out in 2021 at $2,013.3 billion, which could have been driven by record-low interest rates, government incentives, and a rush to get the jump on rising inflation.

And while Australians do love to get a bargain on their mortgages, does that mean they are getting a good deal? And is t. enough competition in the market for them to have real choice in taking out mortgages? Savvy answered these questions in its latest analysis.

Savvy noted data from Statista that showed the Commonwealth Bank of Australia dominating the mortgage lending market at the end of 2021, capturing a 25.89% share, up 0.16% from 2020. Coming up second was Westpac, with a 22.5% share (down 0.5%), then ANZ with 14.54% (up 0.26%). NAB, on the slenderest of margins, came up fourth at 14.43% (down 0.35%).

Meanwhile, the “other” category – small credit unions, non-bank lenders, and alternative funding sources – accounted for 8.57% of the shares (down 0.02% from the previous year.) One of the biggest movers – at least proportional to its size – was the Bendigo and Adelaide Bank, which climbed 0.75% to 3.32% of the market. Macquarie Bank lost 0.55% market share from 2020 to 2021, ending up with 2.34%.

Savvy noted that the market share increases and decreases among the top lenders are marginal at best.

When it came to mortgage holdings by lender, CBA ranked first with $308.7 billion in owner-occupier mortgages and $159.2 billion in investment mortgages for a total of $467.9 billion. This was followed by Westpac with $229.9 billion in owner-occupier mortgages and $176.7 billion in investment lending – the latter representing 43.5% of their total mortgage lending. ANZ and NAB posted almost identical figures, with ANZ lending $262.7 billion and NAB $260.9 billion. ING Bank held $43.4 billion in owner-occupier mortgages versus only $8.3 billion for investments – a share of only 16%.

The non-big four or “Lower Six” have about $174.9 billion combined in owner-occupier mortgages, while the “other” category holds $118.7 billion in owner-occupier mortgages and $36.1b in investment housing, a total of $154.8 billion.

Savvy said t. seems to be the “bigger two” and the “big two” when looking at market share and holdings. The “bigger two,” CBA and Westpac, own 48.39% of the market, while the “big two,” NAB and ANZ, have a combined 28.97%. The other six major banks, meanwhile, comprise only 14.04% of the market.

“Though financial analysts and commentators regularly refer to ANZ, CommBank, NAB, and Westpac as the ‘Big Four’ banks, it would be more accurate to separate CommBank and Westpac as the ‘Bigger 2,’” the Savvy analysis said.

Regarding the competitiveness of Australia as compared to other countries, Savvy said the Australian experience is mirrored in countries with similar financial institutions – such as the United Kingdom, w. t. is also a dominant segment. Lloyds Banking Group captured 19.7%, Nationwide BS 13.1%, NewWest Group had 11.4%, Santander UK had 11.4%, and Barclays 9.8%. The UK’s “other” institutions, on the other hand, comprise 11.6% market share.

“Though it would be a stretch to say the UK is more competitive than Australia, it seems that t. are a few natural market leaders and a healthy number of alternatives for those who want to shop around for a better deal on their mortgage,” the Savvy analysis said.

Savvy CEO Bill Tsouvalas said the banning of exorbitant mortgage exit fees and other fees such as fees-for-no service has theoretically encouraged Australians to refinance their home loans with more competitive lenders – but it hasn’t really happened.

“According to Statista, only 11% of Australian mortgage holders have switched mortgage lenders for a better deal in the last 12 months over 2021,” Tsouvalas said. “What’s incredible to me, having spent the bulk of my career in personal finance, is that 65% of Australians haven’t switched and have no intention to switch. This is buoyed by the fact that 28% of respondents to that survey said they successfully negotiated a better rate with their current bank or lender, which is a positive sign that banks are aware of the competitive nature of the mortgage market and will attempt to accommodate to the needs of their customers. I suspect that these naysayers will be eyeing off the market closely as the Reserve Bank moves to increase interest rates to combat rising inflation. Those who can lock in competitive rates now will be in a far better position than those who try to get a better deal after the horse has bolted.”