How does the Australian Lenders' Index work?
The Australian Lenders' Index measures the interest rate performance of Australia's major lenders in the residential home loan market, across a range of industry metrics over a five year period.
The current lenders covered by the Index are the Commonwealth Bank of Australia, National Australia Bank, Westpac, ANZ, Homeside (a division of NAB), and St George Bank (a division of Westpac) — six lenders in total.
The initial period of analysis is comprised of data from 1st of March 2008 until the most current data available.
The data analysed and used to construct the index consists of month-on-month published 'Standard Variable Professional Pack' interest rate data for each lender corresponding to a $300,000.00 home loan at 70% LVR, and the RBA's monthly cash rate.
Lender Interest Rate and Fees data has been sourced from Finware (a leading provider of mortgage broker software). This data is periodically verified for accuracy against each lender's website.
Additional data and insights used in the creation and ongoing maintenance of the Australian Lenders' Index will be sourced from Finware, the Reserve Bank of Australia and each lenders' website. Publicly available data for each lender may be used to inform the analysis — for example, investor presentations, annual reports and stock price information.
The Australian Lenders' Index itself consists of an overall score attributed to each lender based on their interest rate performance against ten key metrics, grouped against three categories. All rates used are the standard variable professional pack interest rate.
The categories and metrics are:
- 1. Current lender interest rate
- 2. Average interest rate over analysis period within sample group
- 3. Number of months as the lender with the lowest average interest rate in the same group
- 4. Number of months below lender interest rate average in the sample group
- 5. Average size of lender interest rate spread to RBA Cash rate
- 6. Number of movements in line with the RBA Cash rate
- 7. Number of interest rate increases greater than the RBA Cash rate change
- 8. Number of rate decreases less than the RBA Cash rate change
- 9. Average days for lender to apply interest rate increase after an RBA Cash rate change
- 10. Average days for lender to apply interest rate decrease after an RBA Cash rate change
For the current version of the index, each metric has been equally weighted and a weighted score calculated for each lender across each key metric.
The weighted scores for each metric are then added for each lender to form an overall score which allows each lender to be ranked for the purposes of the Australian Lenders' Index.