Home loan competition to heat up with ‘open banking’: Moody’s

Banks will be pushed to compete more fiercely for home loan customers from early next year, potentially by offering lower interest rates, due to a new data-sharing regime that will come into force, Moody's predicts.

A new report from the global credit ratings agency says competition in the home loan market has intensified in recent years, as banks have offered customers bigger discounts on their advertised mortgage interest rates.

The move to open banking in 2020 could put more “downward pressure” on bank interest rates, Moody’s says.

It predicts these competitive pressures will persist this year and next, as banks fight more aggressively to grow in a slowing housing market, targeting owner-occupiers in particular. The government's plan to give consumers a "data right" from 2020 will likely add "further impetus" to price competition in mortgage lending, it says.

From February 2020, the major banks will be required to give customers access to internal data on their mortgage accounts — a move that is intended to make it easier to consider switching to a rival bank. Moody's says it could make the mortgage market more transparent, and may result in lower interest rates.

"This development will reduce the current opacity in pricing that has resulted from discretionary discounting of headline mortgage rates, and has the potential to create further downward pressure on home loan interest rates," the report says.

Prime Minister Scott Morrison, in his previous role as Treasurer, also claimed the model known as "open banking" could "transform the competitive landscape" in banking.

As well, the Reserve Bank has previously thrown its support behind open banking — a model that will ultimately be rolled out to industries including energy and telecommunications through what is known as a "consumer data right".

However, there is some debate about how long it may take for consumers to benefit from the move towards data-sharing.

Martin North, principal of consultancy Digital Finance analytics, said that "in theory" open banking should boost competition, but this would only occur if there was an innovative industry of financial technology companies that encouraged consumers to engage in such switching.  He did not think this was yet the case.

"At the moment, I don't think there's a huge amount of players offering a huge amount of innovative products and services," he said. "My expectations is it could be another two or three years before we really see this hotting up."

Even so, Mr North agreed competition in the mortgage market was likely to intensify this year, as loan growth slowed.

Meanwhile, in the latest sign of tighter mortgage lending conditions, Westpac-owned RAMs confirmed on Wednesday that it had stopped offering a low-documentation home loan for small business owners.

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