Banks open door to non-bank rivals

Lenders can expect the net interest margin they earn on home loans to decline by around 10 basis points over the next year, a study by Deloitte has found.

Deloitte argued in its study, the Australian Mortgage Report 2013, that more mortgages are being written by lenders at the marginal net interest margin (NIM) and that this will reduce the average NIM.

Deloitte estimated the average NIM on new home loans for a major bank at 195 bps, compared with 240 bps on a bank's back book. For non-bank lenders, Deloitte estimated the NIM on new loans at 80 bps.

These trends may tempt banks to re-price their new and old loans to restore margins, a trend that may make the landscape more appealing to non-bank lenders.

"While non-banks have reduced origination to a trickle in the past 12 to 18 months due to higher funding costs, the clawing back of margin by the major banks and the recent improvement in wholesale funding spreads means the potential NIM of non-banks is approaching pre-GFC level," Deloitte wrote.

(Note: An earlier version of this story incorrectly reported the average major bank NIM as 95 bps for a new home loan and 125 bps for a bank's back book.)