Bank of Queensland has embarked on an aggressive pricing strategy to revive its struggling mortgage business through its Virgin Money arm and its house-branded retail banking operation.
The Virgin Money arm has slashed rates for new borrowers with large deposits to as low as 2.6 per cent, while BOQ-branded home loans have been reduced to 2.69 per cent.
The repriced Virgin Money offer, which represents a 0.2 per cent reduction, is the lowest mortgage rate ever offered by a BOQ entity.
BOQ is angling to lure borrowers from rival lenders who already have significant equity in their homes.
The sharply priced Virgin Money offer is available to new borrowers and those refinancing from other lenders who are seeking to borrow up to A$750,000 and hold at least 40 per cent equity in their residential properties.
The BOQ-branded Economy Owner loan is aimed at all lenders wanting to borrow at least $150,000 and hold at least 30 per cent equity in their home.
Canstar director Steve Mickenbecker said the repricings meant that BOQ was among the most competitively priced bank lenders in the mortgage market, offering rates that were potentially more attractive than fast-growing credit providers such as Macquarie and HSBC.
“It is becoming apparent that lenders are focusing their best offers on borrowers with bigger deposits because there is concern that property prices might fall in the current economic environment,” he said.
“If I was running a home lending business these economic conditions I would be trying to drive volumes skewed to borrowers with low loan to value ratios.
“Such lending reduces the profile of a lender’s book and that’s why lenders are going to fight hard in the refinancing space.”
APRA data indicates that BOQ has begun to recover some ground in the mortgage market in the last six months, but has a lot ground to recover after haemorrhaging market share since March 2016 when it had a $30 billion-plus home loan book.
In the last four years BOQ’s mortgage book contracted by $1.35 billion to $28.7 billion. During the same period aggressive lenders such as Macquarie and ING have expanded their loan books by $20 billion and $13 billion, respectively.
BOQ recently expanded its business development teams engaged with broker networks and has invested heavily in servicing technology to improve turnaround times on approvals and settlements.
“There is no doubt that Macquarie has benefitted from developing reliable origination and settlement processes,” said Mickenbecker.
“Brokers know that Macquarie can deliver on settlement times so I’m not surprised they’ve been able to grow market share.”
Most of the mortgage rates currently market by BOQ and Virgin Money to borrowers requiring higher LVRs are priced below 2.8 per cent, which means they are within the top quartile of offers in the market.
BOQ’s repricings come as the bank’s marketing has been complicated by the uncertainty surrounding the future of Virgin Australia’s(the airline) Velocity Frequent Flyer program.
BOQ’s Virgin Money arm will cease awarding Velocity points to home loan customers from 25 May, although existing eligible borrowers will continue to accrue points.
In an apparent compensatory move, Virgin Money this week sweetened the cashback available to new home borrowers by $500 to $2500.