Banks offer cash to lure customers

Banks are offering steep interest rate discounts and even throwing money at home buyers as they compete for a slice of Australia's booming housing market.

With demand from home buyers heating up across most capital cities, lenders are doing all they can to snare new customers.

National Australia Bank stepped things up a notch on Monday by offering a free $1,000 gift card for customers who take out a loan of $300,000 or more.

Canstar research analyst Mitchell Watson said with interest rates low across the board and most banks offering similar terms and conditions on loans, lenders were increasingly looking for extra incentives to attract customers.

"There does seem to be a trend with offering incentives," he said.

"Home loan features are now fairly homogeneous and rates are fairly competitive across the board so offering incentives like this will make a product stand out."

University of New South Wales economist Tim Harcourt said the incentives and discounts on offer were a sign that competition was strong in the banking sector.

"It shows even with the four pillars system there is still plenty of competition," he said.

NAB is not the only bank offering a cash incentive to borrowers, with the Commonwealth Bank providing a $1,000 rebate to first home buyers .

Meanwhile, Westpac says it is not currently providing any additional monetary incentives but does offer a discount of 0.7 per cent or more on its standard variable rate.

ANZ did not respond to questions about what incentives it offered.

A recent report by JP Morgan found all the major banks were offering significant home loan rate discounts, with wealthy borrowers receiving the best deals.

The report found first home buyers were often only able to access a discount of 20 percentage points, while richer and apparently safer borrowers were receiving up to 140 percentage points off their loan.

Mr Watson warned buyers not to be taken in by the incentives and to instead focus on getting the lowest rate and most flexible loan available.

"While $1,000 will help you now, a lower rate will help you over the next five to 15 years," he said.

Meanwhile, ratings agency Moody's recently warned banks were lending money at a faster rate than they were taking in deposits, meaning they were increasingly reliant on international wholesale funding markets.

That could affect the banks' credit ratings, especially if lending continued to grow, the agency warned.

But Dr Harcourt said there were no signs banks were taking on too many risks to increase their loan books.

"I don't think any of those major four banks would do anything too silly given the experience of the GFC," he said.