Big four banks take stranglehold on mortgages


The big four Australian banks are increasing their dominance of the mortgage market, according to the Australian Financial Review.

Their share has increased to 92.6%, up 1% from a year ago, despite not passing on the full cut in official rates to customers, and offering more expensive loans than their smaller competitors.

Australia and New Zealand Banking Group (ASX: ANZ) is expected to cut its rate by 0.2% on Friday, the same amount already passed on by Westpac Banking Corporation (ASX: WBC), National Australia Bank (ASX: NAB) and Commonwealth Bank of Australia (ASX: CBA). The Reserve Bank of Australia cut official cash rates by 0.25% last week.

Most of their smaller competitors are offering mortgage rates significantly lower than the big four. Greater Building Society’s standard variable rate is 6.05%, compared to the major banks’ 6.4% to 6.5%.

The rising dominance of the big four has led to concerns of a lack of competition in the mortgage market. Several of Australia’s biggest credit unions, building societies and mutual banks have written to the federal treasurer, Wayne Swan, urging him to do more to boost competition.

Damian Walsh, managing director of Bankmecu has accused the banks of not adequately disclosing their ownership of smaller banks, such as St George and Bank of Melbourne, both subsidiaries of Westpac, and Bankwest, owned by Commonwealth Bank. Consumers therefore have no idea which bank they are actually dealing with.

According to ratings agency Standard & Poors, the big four banks have an implicit ‘government guarantee’ because they are viewed as too big to fail.  That allows them to receive AAA credit ratings, and consequently enables the banks to access cheaper credit that the smaller Australian lenders, which cuts their lending costs.

The Foolish bottom line

Despite the government’s previous attempts to make switching home loan lenders easier, many people still find the process too daunting or difficult, and tend to stay with their existing lender, despite cheaper loans that could save them thousands of dollars. The big four banks know this, and until further incentives are introduced, the big four are likely to maintain their dominance of the Australian mortgage market.

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Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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