In a bid to win back some of its lost market share, Westpac (ASX: WBC) will now offer an even larger discount to new customers taking out a loan of more than $250,000.
Despite having lowered its standard variable home loan rate by 0.28 percentage points after the RBA cut the official cash rate in August, Westpac still commands a significantly higher rate than those offered by its 'big four' competitors. Its rate is 5.98%, compared to the 5.88% offered by ANZ (ASX: ANZ) and NAB (ASX: NAB) or the 5.9% offered by Commonwealth Bank (ASX: CBA).
In July, it was revealed that the bank's market share had diminished by 0.7% over the previous 12 months. Now, a new analysis undertaken by UBS on the mortgage market shows that, compared to its primary competitors, Westpac is winning a smaller share of new loans.
UBS said, "Westpac stands out as having significantly lower levels of new fundings as a percentage of its mortgage book… This appears to be the key reason behind its market share losses." Whilst it is difficult to establish how much of this loss is due to price, UBS analyst Jonathan Mott stated that "it is worth noting that the strong growth in CBA's mortgage sales correlates with its moves to reduce its standard variable rate to the lower end of the peer range."
Although Westpac's standard variable rate is significantly higher than that of its peers, it has been established that it would not be economically viable for the bank to cut its rates to the levels of its competitors. With its higher rate, the bank's higher margins were offsetting its market loss, however, "ongoing share losses are something senior management and boards struggle to accept for an extended period."
The discount is being offered as part of a spring home loan campaign, and is expected to run for around three months.
Foolish takeaway
With many analysts expecting that the RBA's easing cycle is now complete (with interest rates sitting at an all-time low of 2.5%), the discount is a wise move by Westpac in order to capitalise on more applications for home loans.
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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.
