Robin NAB

NAB this week broke off its 20 year relationship with its Big Four comrades by announcing plans to pay the exit fees for mortgage holders who refinance from CBA, Westpac and ANZ.

In a cleverly worded anti-valentine letter to its big three rivals, NAB broke off the relationship with the oft-used break-up line ‘It’s me – not you’.

Westpac instantly hit back in a fashion very much akin to a jilted lover, discounting its offer by announcing it would waive the $395 annual package fee along with the $600 establishment fee on its home loan package and appealing to a wider market by loosening its requirement for lender’s mortgage insurance to 85% loan to value ratio (LVR), up from 80%.

But why did Westpac take the bait?

According to CoreData’s latest Australian Mortgage Report Quarter 1, the bank sits in second place in terms of residential mortgage market share, accounting for around one in four residential mortgages in Australia ($281 billion or 24.4%).

NAB, on the other hand, sits in third place with just $158 billion (or 13.6% of market share). Westpac is almost twice the size of NAB, yet based on its reaction one would think the two banks were neck and neck.

And do exit fees really influence mortgagor behaviour? Do mortgage holders really feel locked into their Big Four bank because of exit fees?

When respondents to CoreData’s Mortgage Report were asked how likely they would be to change providers if their current lender abolished exit fees, only 14% indicated they would be very likely compared to just under one third (32%) who said they would be very unlikely to switch.

Interestingly 9% said they didn’t know.

How likely would you be to change mortgage providers if your current provider abolished exit fees? (CoreData Q1 2011 Australian Mortgage report)

NAB has been growing at an above system 11.3% for the past year and 4.0% for the quarter (system – 8.3% and 1.5%) through its aggressive low fees and low interest rate strategy.

The renewed focus on mortgages by NAB, whose strategy has recently centered around growing its deposit book (primarily through it’s uBank subsidiary) is an attempt to reclaim market share handed to CBA and Westpac through their decision to reduce lending during the GFC.

But it is as yet unclear if this new approach has the ability to shake up the Australian banking sector and position NAB as the new lender of choice in the eyes of consumers.

By breaking ranks, NAB has positioned itself as the Robin Hood of the Big Four banks.

The question is; who are they saving?

*The Q1 2011 Australian Mortgage Report – ‘Mortgage money on the move’ is available for purchase.

For more information contact Richard McClelland at CoreData on 02 9376 9608.