Bouris: ‘Why the banks are really hiking rates’

The major banks will claim they are hiking mortgage rates so they can stash cash to satisfy the industry regulator, but Mark Bouris told Yahoo7 that's not the real reason.

The Murray Inquiry – the most sweeping review of Australia’s financial system in almost two decades – recommended that the big four banks raise capital levels to offer the system more stability.

Also read: NAB hikes interest rate

Such recommendations have been approved by industry regulator APRA and the government, so the major banks have followed with mortgage rate hikes to facilitate this.

Matt Comyn, group executive for Retail Banking Services at CBA said the bank had raised its home loan rates to "strengthen our capital position in line with new regulatory requirements implemented in response to the Financial System Inquiry [the Murray Inquiry].”

However, Mark Bouris, executive chairman of non-bank rival Yellow Brick Road, told Yahoo7 Finance that such a justification is misleading.

“As a result of holding more capital against mortgages and other assets, banks are left with an inefficient use of capital,” Bouris said.

Also read: CBA raises mortgage rates

“As a result of that, the major banks’ yield on a mortgage will drop.

“So to maintain their yield, and they are not telling anyone this, they are going to increase their margins.”

In short, holding this money is costing the banks, so the customers are paying.

Bouris said this presents an opportunity for “market disruptors” in the non-bank lending sector.

“My experience is that price is always king,” Bouris said.

“We did a sensitivity analysis many years ago, and found that at a 0.25 per cent difference between a bank and a non-bank, a customer will consider refinancing.

Also read: Westpac to raise variable mortgage rates

“We were all around the same level a year ago, but in 2015 there is now a significant difference between the major banks and us in terms of home loan rates.”

Bouris said the task for consumers now is hunting the best home loan rate in the market.

“Today there are so many classes of mortgage, the poor consumer hasn't got a clue. This results in less migration from lenders to competitors.”

“So, my response to the major banks’ hikes is this: I’ve dropped my rate.

“I’m going after the banks,” Bouris added.

Yellow Brick Road’s Rate Smasher Home Loan has been dropped to a 3.92% p.a comparison rate.

Also read: Bouris: Housing crisis has ‘no solution’