Sometimes the best joke comes from the person who doesn’t know he’s being funny.
I don’t know any business owners who’ve raised their margins by 80 per cent in the past two years. Do you?
Like the story that appeared in a Sydney daily newspaper this week where the banks were saying that borrowers can get cheaper loans – all they have to do is ask!
With the Global Financial Crisis and the disappearance of the non-bank lending sector, the four major banks have reverted to an oligarchy and the result has been costlier mortgages, mostly from the banks’ profit margin.
I saw how this worked during the time that I built Wizard Home Loans. As we increased market share, the banks reduced the margins they charged on their loans, until they had basically halved their margins to parity with the non-bank lenders’.
Now, with the end of mortgage competition, the margins (the retail cost of the loan minus the cost of the funds to the bank) have risen again.
My columns and speeches on this subject have met with the familiar responses: senior bankers saying that their costs have risen, that their mortgages are competitive and anyway, it’s all the fault of the GFC.
So I was interested in a survey of mortgage margins conducted by Autonomous Research.
The survey looked at the average mortgage margin charged by a nation’s banks, and compared that average to the period 2004-2007 – the era when borrowers were increasingly borrowing from places like Wizard.
Autonomous found that far from Australian banks performing competitively, the average mortgage margin had risen to 1.88 per cent on each loan, making Aussie mortgages the third highest mortgage margins in the survey countries, after the United Kingdom and Canada.
In that golden era of 2004-07, Australia’s average mortgage margin was 1.06 per cent. Which means in little over two years, the margin paid on a mortgage by Australian borrowers rose by around 80 per cent.
I don’t know any business owners who’ve raised their margins by 80 per cent in the past two years. Do you?
While Australian banks had an average 1.88 per cent margin, banks in Germany, France, the US and Spain were charging in the range of 0.82 per cent to 0.95 – around 1 per cent less than Australian banks.
And 1 per cent is a massive difference over the life of a loan.
New lenders will see all this and they’ll enter the mortgage market.
My new company, for instance – Yellow Brick Road – is lending mortgages.
However, it takes the consumers to really change things around.
Back in 2004-07 the banks only dropped their margins because they were losing so much business.
Will our current situation continue for long?
That question will be answered by the only person who can change things: the consumer.
Mark Bouris is the Executive Chairman of Yellow Brick Road.
Email Mark on mark.neos@ybr.com.au with any queries you may have or check www.ybr.com.au for your nearest branch.