Big four increase grip on mortgage market

Commbank moves to increase stake in Aussie Home Loans to 80%

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published January 7, 2013 11:50 am AEDT

Mortgage borrowers could face a tougher time and higher interest rates after the Commonwealth Bank of Australia (ASX: CBA) announced plans to increase its ownership of Aussie Home Loans from 33% to 80% late last year.

'Aussie John' Symond will continue as executive chairman of the group and the company will remain a standalone mortgage broker and financial services provider.

Many commentators have expressed concerns that the big four banks have a stranglehold on the Australian mortgage market with estimates they control more than 80%, and this move will likely increase their market share.

Other players have moved to wrestle some of the market share away from the big four, such as Mark Bouris' Yellow Brick Road Holdings (ASX: YBR) deal with Macquarie Group (ASX: MQG) to utilise Macquarie's balance sheet to lend funds to home borrowers.

Yellow Brick Road is aiming to undercut the banks' standard variable rates by offering a 1.15% discount off the base rate of 6.65% on residential home loan products for the first twelve months of the loan. The company will then offer a further guaranteed discount for the life of the loan.

Whether it will be a successful move is difficult to ascertain.

Mortgage borrowers tend to stay with their existing lenders, despite being able to save thousands if they switched to cheaper providers. Moves by the government to make it easier for borrowers to switch lenders have had little effect, and the big four, including the Commonwealth Bank, ANZ Banking Group (ASX: ANZ), Westpac (ASX: WBC) and National Australia Bank (ASX: NAB) have steadily increased their market share since the global financial crisis.

That's also despite them passing on a fraction of the Reserve Bank of Australia's recent rate cuts in full to their customers, unlike some smaller lenders such as ING Direct.

The Foolish bottom line

The domination of the Australian mortgage market by the big four banks looks set to continue. Only further government intervention appears likely to have any chance of changing the current status quo.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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