According to a report by UBS Securities banks are losing money on new home loans at their current level of costing.
It seems that the higher funding costs are causing the banks to lose money on new home loans, however the high level of competition in the finance industry is causing banks to sell home loans at a loss in order to gain a customer for all their other services.
The Australian Banking Sector Update, compiled by UBS analysts Jonathan Mott, Chris Williams and Adam Lee, said once the operating costs of a lender are taken into account, banks may have been losing money for the last four months on newly written home loans.
“Simply, the marginal cost exceeds the marginal revenue,” the report said.
According to this report, banks do not really have any incentive to write new home loans unless the home loans are repriced to take into account their true cost. – this can potentially increase the cost of home loans to borrowers.
The report also said that the ongoing debate about whether Australian banks should reprice their mortgage books according to the RBA’s cash rate decisions “is emotive and often not particularly well informed”