So, where’s the mortgage battle up to now?

The evidence suggests the “mortgage war” has entered a new phase that’s a bit less favourable to customers than last year’s outbreak of rivalry between banks.

Many bank-watchers say competition has eased off slightly compared with the peak last year, though it’s still squeezing bank shareholder returns.

Not only has there been a reduction in the number of “cashback” deals, it also appears as though banks are being stingier in their pricing of new loans.

The best proof of this is that analysts say the so-called “loyalty tax”, the difference between what new and existing customers pay for their loans, has narrowed to its lowest level since 2019. A wider gap suggests banks are competing hard to win new business, but lately, some analysts say the rates on offer for new customers haven’t been as sharp.

Second, the two banks that most obviously tried to sit out the period of intense competition, Commonwealth Bank and National Australia Bank, have lost market share in home loans.

Figures from UBS show CBA’s market share has drifted from 25.9 per cent to 25.2 per cent in the year to January, while NAB’s has come in from 14.8 per cent to 14.6 per cent. At the other end of the spectrum, ANZ and Macquarie have been competing aggressively on price and expanding their share.

This puts pressure on CBA in particular. The biggest retail bank in the country will never allow rivals to pinch its customers for long.

Which takes us to a third development: some banks’ strategies for fighting this war are becoming clearer. Commonwealth Bank, in particular, appears to be using a model that has some similarities to Qantas’ use of Jetstar as a budget alternative to the flying kangaroo brand.

Earlier this month CBA said it would shut down its Bankwest branch network in Western Australia, and turn Bankwest into an entirely digital bank that sells loans through mortgage brokers. CBA’s move, which will slash costs, is widely seen as a response to the fast-growing and (also branchless) Macquarie.

Chief executive of digital mortgage broker Finspo, Angus Gilfillan, says making Bankwest purely digital will lower its costs to compete, and he suspects one reason for the change was to take on Macquarie head to head. “Removing physical distribution and leveraging brokers puts the cost base on an even footing with Macquarie,” he says.

CBA also has a digital-only and no-frills loan called Unloan, which it’s also offering at lower rates than its regular CBA mortgages.

In the current environment, where banks are trying to be more picky about how they compete, wrangling a better deal out of your lender may take a bit more effort.

And CBA isn’t the only big bank to use one of its subsidiary brands to go on the attack. Research from Canstar this week found it’s a pattern across the industry in which banks’ subsidiary brands are offering advertised rates up to 0.75 percentage points lower than their parent companies’ advertised rates.

Canstar found NAB’s digital offshoot UBank was offering lower advertised rates than NAB; digital play ANZ Plus offered a no-frills home loan with a cheaper rate than ANZ; and Westpac offered a lower rate through its RAMS brand (however, it is looking to sell RAMS).

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Why would a bank use a smaller brand it owns to undercut itself? Because it keeps the bank competitive in the market for cost-conscious borrowers, while preserving returns in the main brand, where the vast majority of loans are held.

It may well make sense for shareholders, but it might mean customers need to look harder for a highly competitive rate.

When interest rates were rising and refinancing was at record highs last year, banks faced a wave of people calling up to demand a better rate. In some cases, banks even put people on lower rates pre-emptively.

In the current environment, where banks are trying to be more picky about how they compete, wrangling a better deal out of your lender may take a bit more effort.

Ross Gittins is on leave.

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