As the cash rate target has climbed over the past six months, the major banks have increased their rates the most, compared with non-bank lenders and smaller ADIs, which have had the smallest increases of the three groups.
This suggests recent commentary that non-bank lenders are being priced out of the market is not correct.
Canstar looked at the average variable home loan rates for the three groups of lenders going back to April and up to October 12. The average home loan rate offered by the big banks has increased by 2.29 per cent over that period.
The average increase for non-bank lenders is 2.17 per cent and the average for smaller ADIs is 1.91 per cent.
The figures show that non-banks have improved their price competitiveness versus the big banks over that period but not versus the smaller ADIs.
In April, the average non-bank rate was 2.31 per cent – 108 basis points lower than the average big bank rate of 3.39 per cent. Today the average non-bank rate is 4.46 per cent – 120 bps lower than the average big bank rate of 5.68 per cent.
In April, the average smaller ADI rate was 3.07 per cent, giving the non-banks a 76 bps advantage. Today the average smaller ADI rate is 4.99 per cent – giving the non-banks a 51 bps advantage.
Despite what these figures show, there is a view that the non-banks are being priced out of the market. The Australian Financial Review reported last week that Nano Digital Home Loans had suspended new lending because of “soaring funding costs”.
And in its September quarter market report, aggregator AFG said non-major lenders were “feeling the pinch as they are compelled to increase rate above the official cash rate.” Banking Day sought clarification of this statement from AFG management but did not get a response.
The averages only tell part of the story, of course. Bigger non-bank lenders are funded through the public securitisation market and would have a much lower cost of funds than a start-up like Nano, which does not have access to public markets.
And the average interest rates do not tell us anything about the margin positions of the different groups of lenders. It is possible that some lenders are staying in the market by writing unprofitable business.
But overall, the picture is of a non-bank sector that remains competitive.