Your daily fintech and banking briefing.
Today: Jun 13, 2024

2024: Mortgage market soars, snubs high interest rates and prices!

2 mins read

Key Points:

  • The mortgage market is expected to continue growing in 2024, despite high interest rates and strong house prices.
  • Experts believe that interest rates will stabilize, benefiting first-time homebuyers.
  • The intense competition within the home loan market has eroded banks’ profit margins, leading to a reduction in cashbacks and an increase in mortgage rates.
  • Although the mortgage price war may have passed its peak in 2022, competition is expected to increase slightly in 2024.
  • Big banks, such as ANZ and Westpac, have experienced growth in their owner-occupied housing loans, indicating ongoing competition.

The mortgage market is set to defy high interest rates and strong house prices in 2024, according to experts. Despite a period of intense competition that hurt bank profit margins over the past two years, the mortgage market is expected to continue growing steadily. Angus Gilfillan, CEO of Finspo, predicts “a period of more stability” as interest rates stabilize, benefitting first home buyers.

Although the overall market is expected to grow, Gilfillan suggests that it will not be at the same levels seen during the pandemic. However, first-time buyers will have the advantage of government grants and relatively stable repayments in the coming years. Nevertheless, borrowers will have to put in more effort to find the most favorable deals.

The mortgage market has experienced intense competition in recent years, as banks vied for customers through ultra-low fixed-rate loans and cashback offers. However, this competition has led to eroded profit margins, with banks reducing cashback offers and increasing mortgage rates. Although the peak of the mortgage price war has passed, Gilfillan believes that competition will increase slightly in 2024, with smaller lenders taking market share from larger players.

The latest data from the Australian Prudential Regulation Authority shows that the big four banks and Macquarie all saw growth in their owner-occupied housing loans in November. However, growth rates varied, with Macquarie experiencing the highest increase at 1.1%, followed by ANZ and Westpac at 0.6% each, and Commonwealth Bank with the lowest increase at 0.1%.

In terms of future competition, economist Paul Ryan suggests that higher interest rates will take some pressure off bank margins, which will then be passed on to borrowers through stronger competition. Ryan believes that house price growth and high interest rates may dampen first home buyer activity, but it will still grow at a solid, albeit not exceptional, rate.

While competition among the big four banks is expected to continue, there will likely be limited room for lenders to move due to margin pressures. Nevertheless, the major banks are expected to compete with each other to gain market share.

It is uncertain how competition will evolve in the mortgage market, but it may depend on how borrowers respond. If customers continue to switch lenders and negotiate for better deals, banks will be forced to maintain their competitiveness. However, some experts believe that the peak of refinancing and switching has passed.

In conclusion, despite high interest rates and strong house prices, the mortgage market is expected to experience continued growth in 2024. First-time buyers will benefit from government grants and stable repayments, but borrowers will face the challenge of finding the best deals in a more competitive market. The intensity of the mortgage price war has decreased, but smaller lenders are still taking market share from larger banks. Overall, competition will likely remain steady, with some fluctuations due to interest rate changes and borrowers’ actions.