Credit Crisis Hits Mortgage Brokers
The Age
Monday February 18, 2008
THE IMPACT of the global funding crisis has reversed 15 years of fierce competition in the mortgage market, with the major banks eating into the seemingly impregnable share held by specialist rivals such as Aussie Home Loans, Wizard, and RAMS.
The banks have capitalised on the financing squeeze faced by the mortgage companies, lifting their total stake to 85% - the highest level since financial deregulation opened up the market in the mid-1990s. Greater bank dominance means the shape of the home mortgage market is being rapidly re-drawn. Mortgage brokers report that, in the past six months, banks have zeroed in on would-be home owners as their smaller competitors find cheap finance to underwrite their loans increasingly hard to come by. And the assault has worked. The Commonwealth Bank has been the big winner. It has lifted its share of the bank lending pool from 22.6% to 23.9% in the six months to December.ANZ has been the major loser, dropping from 16.9% to 12.1%, while the National Australia Bank's share of the market has fallen from 18.6% to 17.9%, according to figures from the Australian Prudential Regulation Authority that pre-date the first round of bank-driven rate rises in January. The other two leaders, St George Bank and Westpac have held relatively steady.For consumers, the obvious concern is that competition generated by non-bank lenders, which has been the major factor in keeping mortgages relatively cheap, could start to weaken. After all, the banks' hold over the mortgage market is at its strongest since 1995, when non- bank lenders such as Aussie Home Loans and Wizard began to take serious business from the majors. The general manager of researcher InfoChoice, Denis Orrock, said while the five major banks were increasing their hold over the industry, competition provided by their smaller banking rivals would compensate for any weakness among the non-bank players.Indeed, small banks have done relatively well out of the debt-market turbulence in terms of market share. Excluding the big five, the rest of the banking sector increased its chunk of total mortgage lending from 16.5% to 21%. Among the smaller banks, Citigroup, ING Bank, Suncorp and BankWest all did well. And while investors are itching to dump any bank that looks to be facing cost pressures, the major banks are also yet to receive the boost to their revenues generated by non-Reserve Bank interest rate rises. The principal analyst at East & Partners, Paul Dowling, said it would take between three and six months for the benefits of the Commonwealth's 0.15 percentage point premium to official interest rates to flow through onto its balance sheet. When it did, Mr Dowling said, this would allow the bank to recoup some of the margin it had lost during five years of fierce competition. At the same time, he said, non-banks would still be here to keep the banking sector competitive. "The non-banks are not going to go away," he said. "It is just that their natural habitat in the market may well shift."Mr Dowling said that if funding pressures persisted, non-bank lenders would change their focus to broking mortgages issued by the banks, rather than originating their own mortgages.
© 2008 The Age
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