Home loan cash bonuses drying up fast

For home loan consumers, the past couple of years has been a rare time in which the big banks have been competing strongly by throwing money at them to switch their loans.

In a sign of cut-throat competition, the banks have been happy to apply an effective loyalty tax on their existing customers to entice those switching with low-rate loans and cash back for switching.

For those who don’t mind a bit of paperwork to save some serious money, it has been a great time to score thousands of dollars into the back pocket at the same time as landing a better deal.

However, the latest bank results are pointing to the end of the home loans wars with many of the banks cutting out their loss-leading cash back offers and opting to instead just aim to match overall loan growth.

Even before it released its third-quarter results, Commonwealth Bank said it was scrapping its $2000 cashback at the start of June.

There were many reasons for the loan wars which raged on the back of 11 official interest rate rises.

Online banks grabbing share from the big four

One was the march of Macquarie which on the back of excellent and cheap to run online systems and no branch network to fund managed to come from nowhere to snaffle 5% of the mortgage loan business.

Online banks such as ING and NAB owned U-Bank were also strong competitors that made their lack of expensive branches an advantage.

The banks that were losing market share – predominantly ANZ and Westpac, which both experienced back-office difficulties keeping up with demand – hit the panic button hard as the rush to get the Reserve Bank term funding facility backed fixed loans out the door during the pandemic turned into an evolving rash of refinancing.

Cash back offers spread like mushrooms after a rainstorm and before you knew it, the big banks were all competing hard – almost like normal businesses.

The interesting thing now is that while all of the banks are now boasting about how quickly they are getting rid of the cash-back loan offers, another fertile field for competition could just be starting to hot up.

Get ready for the battle for deposits

That is the battle for deposits which until now have been used as part of the fuel to fund the loan offers.

It is not too hard to offer lower home loan rates when you are paying peanuts for deposits – well below even the official Reserve Bank cash rate – but there are signs now that the battle for home loans is finally subsiding, the battle for deposits might be about to pick up.

Once again, the online banks without the dead weight of a branch network – including Macquarie – might be at the forefront of the battle for deposits if depositors start to play the game a little smarter.

At the moment you can get an at call deposit with a 1 in front of it and with a 5 in front of it, albeit with various conditions.

The days of banks effectively getting a free loan from their depositors are surely coming to an end so make sure you shop around and make some logical deposit decisions.