The current level of discounting from major banks is "as good as it's going to get", an industry analyst has claimed.

A sluggish home loan market has seen banks make aggressive moves to win more mortgage business, with discounting off the standard variable rate now reaching around 90bps. J.P. Morgan banking analyst Scott Manning has claimed banks have virtually no more room to move on price.

"The current rate of discounting is about as good as it's going to get," Manning commented.

Manning claimed current bank discounts had taken returns on equity for mortgage products to around 24%. He said this level of return on equity may be the threshold below which lenders will be unwilling to move.

"We think the mortgage return on equity they would still want to retain in that 20-25% level," Manning said. "We think somewhere around the current levels are logically as low as you can go in terms of the RoEs these banks are targeting."

The current rush of fixed interest rate discounting and promotion from lenders is largely a reaction to reaching the limits of variable rate discounting, Manning said. He pointed out that due to a sag in the funding yield curve, banks were seeing more profitability from fixed rate products, despite the lower rates offered to borrowers.

"The interesting thing is there's actually a sag in the yield curve around the three-year mark at the moment, so banks get a better spread off that product. The borrower gets a better rate, and the return to the bank is higher," he commented.

Manning predicted banks would continue to aggressively promote fixed rates rather than variable interest rate products.