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In a bid to capture market share from leading mortgage lenders CBA and Westpac, National Australia Bank’s (NAB) bold move to keep its interest rate increase in synch with the central bank tightening policy whilst at the same time launching a price war, will keep the home loan market competitive.

Last week, NAB raised its interest rates by 25 basis points, in line with the increase enacted by the central bank and was a clear shot across the bow of rival Westpac, who shocked the market by raising its interest rate by 45 basis points.

NAB’s standard variable rate is now 27 basis points lower than Westpac, and market watchers say they cannot recall when the mortgage rates of two of Australia’s major banks diverged so greatly.

NAB spokesperson Lisa Grey said its move was a deliberate attempt by the lender to attract new customers.

“Today we are sending a message to customers at Westpac, and the other banks, that NAB can offer them a better deal,” Ms Gray said.

Westpac’s mortgage book, which combined with St. George is worth $258 billion dwarfs NAB’s mortgage lending portfolio valued at $152 billion.

Westpac and CBA have been the primary beneficiaries of the Australian economic recovery, having expanded their market share in mortgage lending by 1.5 times the growth rate in the wider banking system.

Westpac’s share of the mortgage lending market had grown 1.79 per cent to 23.5 per cent by last September.

Contrastingly NAB’s share of the mortgage lending market has been declining and fell 31 basis points to 12.8 per cent during the same period as it sought to improve its distribution platform and build better relationships with disenfranchised mortgage brokers.

Banking analysts say the approach to mortgage lending by both banks differed greatly, and whilst Westpac was seeking to improve both its funding mix and quality which negatively impacted its home loan margin. NAB is seeking to stem a decline in the market share of its retail business.

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