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CBA tightens grip on mortgage crown while Westpac relents

The country’s largest lender, Commonwealth Bank, has extended its dominance of the mortgage market at the expense of Westpac, adding just under $16 billion to its loan book in five months.

Intense competition and discounting in home lending have meant that banks are increasingly writing loans at or below the cost of capital, crimping margins as brokers and borrowers shop around for the best deal. Amid its retreat, CBA’s market share fell as low as 25.2 per cent and risked falling below a quarter of household lending, forcing management to draw the line.

While there was a months-long ceasefire from late 2023 to early 2024, there are signs that lenders are fighting hard for loans once again. Canstar data insights director Sally Tindall said CBA had “become far more competitive”.

“They’ve launched a digital home loan, which has helped them price more aggressively. And then, in August, they sharpened their new customer variable rates. They have been firing up competition once again,”

Launched in May, CBA’s digital home loan is only available via its app and website, excluding brokers and the associated commission costs. The product has the cheapest interest rate offered by the bank at 6.15 per cent.

While industry analysts say digital home loans are not a threat to mortgage brokers just yet, CBA’s market share growth of 12 basis points from June to November was the second-fastest of the major banks. Challenger Macquarie outpaced the more established players, growing its share by 32 basis points.

Westpac’s share, however, fell over the five months. The Sydney-based bank saw the size of its loan book recede from $475.4 billion in June to $475.2 billion in September – “concerning for a major bank”, Ms Tindall said

It coincides with a period where Westpac looked to increase loan pricing to protect its margins. Westpac has since moved its interest rates more in line with peers after competitors did not follow it up the pricing curve and grew above the pace of the broader system in November.

That growth means that CBA now accounts for 25.4 per cent of all bank lending to households, extending its march on the competition after a high-profile retreat from the so-called mortgage wars to preserve profits.

National Australia Bank’s market share fell 15 basis points between June and November, according to the Australian Prudential Regulation Authority statistics. ANZ’s market share was broadly flat over that period.

Ms Tindall said mortgage competition would get another tailwind when the Reserve Bank started cutting interest rates, which some economists are predicting to happen in the first half of 2025. Official interest rates have remained on hold at 4.35 per cent for more than a year in a bid to tame inflation.

“Competition usually heats up at those points in time because borrowers re-engage with what their rate is and wonder if there is a better rate out there,” she said.

“We will see increased competition if and when we see RBA rate cuts.”

Yet Westpac chief executive Anthony Miller has warned that a rate cut is far from guaranteed. “Our forecasts are for the cuts to begin in May, but that was previously November and previously February,” he said.

“We have been pushing out when we think the reductions and the rate cut cycle will start,” he said. Despite evidence that inflation was starting to slow back into the RBA’s target range of between 2 per cent and 3 per cent, Mr Miller said, “we all have to take a step back and acknowledge that the Trump administration will be focused on measures that can only be inflationary”.

“If the US has a more inflationary setting, it is hard to see how that won’t directly impact us. If there is a risk, it is that the [economy] is slower again before the rate-cutting cycle starts, and that’s because of the US,” he said.