Commonwealth Bank continues banking war with no-fee home loan as auction results improve

The Commonwealth Bank has introduced a new home loan product with no fees, designed to draw customers away from National Australia Bank, as competition in the banking sector continues to heat up.

Experts say the new era of competition could flow through to other industries, with Housing Industry Association chief economist Harley Dale saying all the new activity from new home owners could have a positive impact on construction and building projects.

“Potentially this could have an impact. This talk of increased competition is occurring within an environment of steady interest rates, and there’s a broad expectation that rates will stay on hold, including tomorrow,” says Dale.

Economists expect the RBA to keep the official interest rate on hold until May – Dale says renewed confidence in mortgages will only last as long as rates remain steady.

“If you have at least a reasonable period of time when rates are on hold, and you have greater competition, then that could provide a boost in confidence and activity for new home building.”

The announcement comes as the auctions market remained firm over the weekend suggesting lower prices are keeping buyers interested, but the number of properties sold was still down from the same time last year.

Commonwealth Bank announced its new loan product late last week in a direct attack on National Australia Bank, which has embarked on a massive ad campaign promising to pay exit fees for customers who switch from its three major rivals.

NAB has consistently bragged that it has the lowest variable rate of 7.67%, but the CBA’s new home loan boasts a rate of 7.24%.

The Commonwealth Bank’s “No Fee” home loan also does away with monthly fees, annual fees and even exit fees, along with promises to negate payment fees, loan services fees and settlement charges.

Existing Commonwealth Bank standard variable rate customers will be able to switch to the new home loan without fees from early April.

But the bank has also promised that new home buyers may also be given a reprieve, with new customers now able to borrow up to 95% of a property’s value, compared to the previous limit of only 90%.

While the bank says this new perk will only be available to new customers with a strong credit history, and they will be subject to mortgage insurance while doing so, the new product should see an uptake in demand.

Executive general manager of retail products Michael Cant told the Australian Financial Review that the bank is eager to expand its home loan business following the reduction of the first home owner’s grant, and a subsequent lack of demand.

“I think we and other lenders are pretty keen for more business at the moment,” he said.

The key, Dale says, is that consumers will need to determine if the fees and charges that are being wiped are actually being distributed elsewhere. If so, then new home building may be quiet for awhile yet.

“There has been some scepticism out there about what people are actually losing and gaining when it comes to fees. But if you take the glass half-full approach, then what you’re seeing is a net reduction in mortgage costs. That could boost housing demand.”

Meanwhile, the auctions market has continued to gain strength over the past weekend, but results are still down from the same time last year.

In Sydney, 306 properties were sold out of 427 on the market, resulting in a clearance rate of 65%. Adelaide had 11 properties sold with a 40.7% rate, while Brisbane saw six properties sold with a 28.6% rate.

Last year, those results were 75%, 77% and 44% respectively.

The Real Estate Institute of Victoria said auctions were also down from last year. There were a total of 590 sales out of 890, representing a clearance rate of 66% – last year that number was 87%.

“With a similar number of auctions the main difference is that last year interest rates were much lower as were overall prices, highlighting the impact of reduced affordability on the market,” REIV chief Enzo Raimondo said in a statement.

The REIV is expecting a similar amount of auctions next weekend.