As the banks are forced to slow down the growth in their lending with the new deposit rules for investors (40%) they will be keen to maintain their margins. Keeping the drop in OCR to themselves and not passing it on to home loan customers would be a strategy to increase their profits while putting up with a slow down in lending growth.
However as much as we would like to think that banks run like a cartel, we actually do have some competition as well. If banks do try and hold their margins, it will only take one of the major banks to break ranks and drop their pants, before everyone else jumps in for the party. Could we still see a refinance war later on in the year?
Other ways for the banks to keep growing profitability would be to embark on lending where their margins are better – business lending and commercial property could be one space. For clients looking at utilising their equity for further growth in wealth – turning their attention towards a higher yield venture looks attractive. Especially when the deposit or equity required for a business becomes similar to a residential investment.
With a 40% deposit requirement for investments and the lure of lower interest rates you could start to see home owners settling for one really awesome property to live in, instead of two. So trading up could become more fashionable.
