Banks are retaining less than a third of fixed rate customers whose loans are resetting as borrowers become more savvy about better prices offered by competitor banks.
Seventy per cent of bank customers whose fixed mortgage rates expired in the past six months refinanced with another bank, according to analysis by the Australian Banking Association provided to a Senate inquiry last week.
This is forcing some banks to write mortgages at below the cost of capital and applying pressure to net interest margins, or the profitability of lending.Margin pressure will be exacerbated by higher wholesale funding costs in US markets after the failure of Silicon Valley Bank, analysts are now warning.
“This change in mortgage rate structure, often referred to as a ‘mortgage cliff’, is more accurately described as a progressive rollover of mortgages from fixed to variable rates, due to occur over the next two years.”RBA Bulletin last week warned that fixed rate mortgages have several risk factors, “Developments in the US banking industry are also likely to cause upward pressure on wholesale funding costs and more competition for stable deposits.”With profits still strong, the ABA has told the Senate inquiry banks stand ready to assist customers. For the first time, the banks have set out the sorts of leniency they might be willing to show.
The ABA has urged “customers are to be proactive” when seeking hardship relief, reducing borrowing costs by refinancing to new lenders, and looking for higher-yielding savings products.
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