new banks entering the market

The decision by Credit Union Australia and AMP Bank to slash variable interest rates on home mortgages is good for the property market and will spur competitive activity, industry experts have said.The move by the two lenders came as Westpac chief executive Gail Kelly reportedly told a private briefing the bank would continue to raise interest rates due to cost pressures despite political pressure from Canberra.Credit Union Australia announced a 25 basis point cut in its variable rate to 6.37%, putting its products well below the interest rates offered by the big four banks. The closest competitor is NAB at 6.74%."We agree with the Treasury Secretary that the banking sector has become more concentrated over the last few years. There is a crying need for more competition and we are taking an active step in driving that competition," chief executive Chris Whitehead said in a statement."At the end of the day our profits go to our customers, not shareholders, in the form of investment in more competitive products and services. We are already a leader in the delivery of great service – this reduction in our SVHL rate means we are keen to take a leadership position in the products we offer as well."The statement comes as the property market is heating up. AMP Bank cut its rates late last week to 6.27%, while Aussie Home Loans also continues to finalise a $1 billion funding program in a return to the industry. Additionally, Macquarie Bank issued nearly $500 million worth of low-doc loans earlier this week.CommSec chief economist Craig James says he was a little surprised by the move, but says it makes sense as more players fight for the lower-end of the market."I think it's a move which has grabbed a lot of attention and I feel CUA will win a little bit of market share out of it. When you see Macquarie getting into the game again with low-doc loans, I think it shows there are more players coming into the market.""Economically speaking, it isn't a surprise, and if it's true that the banks are starting to gouge, the barriers to entry will remain high and give these lenders somewhere to move. There is a new context for the new players, and it's a good thing for the market which may make the banks watch their backs a little more."SQM Research founder and Advisor Edge property researcher Louis Christopher says the broad message of these cuts indicate the market is moving into a more competitive state, indicating a good time for investors to enter the market."The good news for borrowers is that there is now a lot of choice, and it's merely a case of doing your homework on these sorts of things. Certainly the expectation is that rates will continue to rise rather than fall, and people need to take that into their outlook. Also consider it may be a competitive deal now, but rates are going to rise no matter what.""But certainly in terms of the fact there is some competition, it is a good thing for the broader economy and borrowers, and has the potential to encourage other lenders and encourage greater growth."