Perth, WA - The top four Australian banks have reported extremely low lending margins in 2014. They are slowly nearing the all-time low of 2.05 per cent in 2008. According to PwC, Australia’s Big Four Banks dropped 5 basis points to 2.08 per cent over the past six months.
National Australia Bank is the largest lender in Australia, followed closely by the Commonwealth Bank of Australia, Australia and New Zealand Banking Group and Westpac Banking Group.
With competition increasing among the banks, further falls are expected. However, higher mortgage lending is keeping the overall profit margins high for the Big Four. In this hot housing market, mortgage lending contributes up to 40% of big bank earnings.
In the October to March quarter, higher mortgage lending and lower bad debt resulted in a record cash profit of $3.15 billion AUD for National Australia Bank. The strength in housing is expected to continue over the next few years. Homeowners eager to get into the hot housing market will continue borrowing from the top dogs in the banking industry.
There are worries that the recent spikes in housing prices could lead to a credit negative for Australian banks in the coming year. Housing prices have spiked in part due to historically low interest rates set by the reserves.
Recently, many Australian local lenders have reduced their variable home loan interest rates in line with the low national interest. Lenders including Bank of Queensland, Citibank, Homeloans, HSBC, and Westpac have dropped their variable rates up to 0.17% since the beginning of January.
The average rate on variable packages for a $400,000 loan is currently 5.14%.
The competitive market can benefit home buyers who are considering financing options for their new home. Discounted rates can be a solid way to enter the housing market.
At the same time, it is important for home buyers to consider rates and discounts carefully. Variable rates can change over time according to the economy. Each home buyer should determine the risk to decide if low or discounted variable rates fit their personal financial situation.
Some borrowers assume that bank loyalty will automatically get them the best deals and discounts on home loans. Instead, financial planners advocate searching around for the deal befitting your individual budget. Comparing rates can save a homeowner more than ten thousand dollars over the loan’s lifetime.
The Big Four Australian banks offer package variable loans at a discounted rate. However, there may be other variable home loans that are lower than these rates.
Discount rates can be competitive in the current housing market, but they may not be the most competitive in the long run. Discussing risk with a financial planner can help you decide which loans are the best deals in both the short and long-term.
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