While the big banks are expected to pass on the cost of the bank levy to mortgage customers, this may not necessarily result in consumers changing lenders.
New research from the RFi Group explored the mortgage switching market and whether the bank levy of 6 basis points would have any impact on market share. The four major banks dominate the mortgage market, accounting for 80 per cent of the total.
The consensus amongst banking analysts is that the bank levy is likely to result in 6 to 10 basis points of mortgage repricing. However, according to RFi Group research director Amit Khan (pictured), this is “hardly enough to shift the dial”.
RFi Group research examined what sort of price differential would be required to get customers to switch financial institutions. This research was undertaken across the big four banks, mutuals, regionals, online banks and non-banks.
“The numbers suggest the majority could be compelled to switch if the price is right, with only 28 per cent stating that they would not switch purely for rates,” Khan said.
The graph below shows the different rate levels that customers would be prepared to switch. As expected, a higher portion of customers would be prepared to switch the greater the rate difference. Only 5 per cent would switch for a less than 20 basis points rate difference.
Further research from RFi Group found that only four per cent of mortgage holders have indicated that they are highly likely to switch their lender in the next 12 months. The proportion following through and acting on this is likely to be even lower.
Khan highlighted that mortgage switching is limited in scope for a number of reasons.
Mortgage refinancing is restricted to a subset of mortgage holders, with around one-in-five mortgage holders in Australia having refinanced in the past. The bulk of this switching appears to be internal refinancing with only a quarter of this number indicating they switched lender.
“Within this small subset that switched lenders, activity is again dominated by the four majors - accounting for over 60 per cent of bank switching.”
According to Khan, the mortgage repricing levels suggested by analysts, together with the limited size of the switching market and low intention to switch among the big four's customers will mean that the effect from the bank levy will have minimal impact on mortgage market share.