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Trend Report October 2007
2 October 2007
Australia’s ‘Big 4’ Capitalise on Market Uncertainty
The ‘Big 4’ banks are aggressively recapturing market share, as the fallout from issues in the US sub-prime mortgage market hit home and borrowers look to the perceived security offered by the big banks.
The findings come from national mortgage broking group, Smartline’s latest Quarterly Report for September, 2007 – which measures trends in the Australian mortgage market using information captured by the group’s 145 franchise operators across Australia.
The latest data revealed that during the first half of the September quarter, the Big 4 were giving up some of the ground they had captured during 2007, with their share of new loans down to 55 per cent from 62 per cent in the June quarter.
However, they recaptured lost ground in September, accounting for 67 per cent of all new loans generated by Smartline during the month.
“Two major events occurred in the September quarter – namely the August interest rate rise and the start of the meltdown of the US subprime market - both of which have impacted directly on the products Australian consumers are choosing for their home loans,” said Mr Chris Acret, Managing Director of Smartline.
“The collapse of the US sub-prime mortgage market has received considerable media attention in Australia. While we believe the Australian mortgage market is protected to an extent from these developments, particularly given our strong lending standards, it has nevertheless impacted on consumer sentiment in the Australian mortgage market”.
Mr Acret added that the recent interest rate increase had done little to curb property purchaser’s enthusiasm.
“As widely expected, the Reserve Bank increased official interest rates by 0.25 per cent in August and there is a chance that there may be a further increase over the next six to 12 months,” he said.
“Despite this, early indications show the interest rate rise has not had a serious impact on the market overall, with our application numbers increasing over August and September.”
“We are also seeing more clients opting for variable rates – with fixed rate loans representing just 19 per cent of all new loans in the September, 2007 quarter compared with 26 per cent six months ago. This indicated an overall confidence that the interest rate cycle is at or near its peak.
The withdrawal of particular non-bank lending products has also driven the trend towards the ‘Big 4’ according to the Quarterly Report, with a number of non-bank lenders also increasing interest rates over the Reserve Bank increase of 0.25 per cent.
“This has affected the confidence of many consumers, and some mortgage brokers, resulting in more borrowers seeking the perceived safety and security of the ‘Big 4’,” Mr Acret said.
“If this trend continues, it could represent a fundamental change in the market, given that the non-bank lenders have led the way over the last few years, capturing customers with innovative products and reduced rates and fees.”
“Time will tell if the recent shift back to the big banks is just a temporary reaction to recent events, or an emerging long term trend – however we believe that non-bank lenders will recover and continue to display the product and innovation leadership that has led the market over the last few years.”
The popularity of mortgage brokers has also increased on the back of market uncertainly with Smartline reporting an increase of 32 per cent in loan submissions when compared with the corresponding period last year.
The Quarterly Report also showed the continuing decline of basic no-frills loans as the Big 4 continue to regain market share with Professional Packages.
Basic no-frills products represented a quarter of all new home loans written by Smartline six months ago – compared with less that 17 per cent during the September quarter. This was matched by an increase to three out of every four home loans written by the big banks being professional packages.
According to Smartline, Westpac and ANZ continue to compete head-to-head in the professional package space, with Westpac the big winners during the September quarter – its share of professional package home loans increased from 15 per cent in the previous quarter to 18 per cent. However, The Commonwealth Bank continues to lead the market.
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