Record month to close the quarter as major lenders put their foot down

Sydney Harbour Bridge

The AFG Index released today shows the Australian lending market is beginning to feel the effects of the uncertainty of the COVID-19 pandemic.

AFG CEO David Bailey outlined what the company is witnessing: “In a departure from our usual reporting process, I thought it would be useful to break down the March activity as a subset of the quarterly index to show the impacts of the health crisis on lending.

“The March quarter began with a very active property market, largely driven by record low interest rates. This has resulted in a flood of activity in March as brokers help borrowers shore up their positions against the impacts of COVID-19 and a rush to complete transactions as shutdowns loomed.

March was a record month for AFG, with almost $6.15 billion in lodgments recorded. Refinance activity has risen to 33% from 27% in February as borrowers looked for certainty.

“When looking at the quarterly data set, the third quarter is traditionally a quieter time due to the festive season break however lodgments were up 33% on the same period last year. This was the case across the country with New South Wales up 32%, Victoria up 40%, Western Australia up 19%, South Australia up 20% and Queensland up 32% on Q3 2019 figures.

“As interest rates dropped the major lenders saw their opportunity. The strength of their balance sheets, supported by their competitive funding advantage and fixed rate offerings, has enabled them to take back some ground lost to the non-major lenders in recent times.

“All four of the major banks have been actively pursuing market share with cash back offers to customers and it has had the desired effect, with increasing numbers of borrowers choosing from the Big Four stable of brands. As brokers sought competitive offers for their customers, the major lenders’ market share had lifted from 53% to now be sitting at 60%, the highest level the majors have enjoyed since 2018.

Westpac group has seen the biggest increase, with the group’s share increasing from 15% to 20% across the quarter, largely driven by a generous cash back offers for refinancers and customers new to the bank. After a prolonged period of lower market share, ANZ has taken a considerable footprint within fixed rate borrowers giving rise to an increase from 10% to 15% for the quarter.

The non-majors have felt the impact of the majors’ actions with Macquarie dropping from 11.34% to 8.78% and ING’s market share down from 3.45% to 2.48%.

“With the current crisis impacting liquidity in the market it has been very pleasing to see the federal government’s swift response. The support for the non-ADI sector through its $15 billion Australian Office of Financial Management (AOFM) initiatives will support competition.

“When we come through the other side of the health crisis, the maintenance of competition and choice for products across a broad number of lenders is an important cornerstone of an effective lending market that Australian consumers and businesses should be able to depend upon. The AOFM’s actions will ensure that is the case.

“For AFG the next few months will be focused on supporting our customers, broker network and staff as we face the challenges ahead.

“The impact of the unfolding crisis on mortgage holders facing salary cuts or loss of employment has meant brokers and their aggregators are now working around the clock to assist customers to navigate the current situation and assess their options.

“AFG has implemented a series of virtual information, training and webinar programs to ensure our brokers are supported and we were very pleased to have the Australian Small Business and Family Enterprise Ombudsman Kate Carnell join us this week to explain to our brokers the work being undertaken to shore up support for small business.

“In addition, we have rolled out a series of new online processes to allow brokers to help their customers whilst observing social distancing rules and meeting their compliance obligations.

“We will continue to work to provide our network with the latest advice and support to help them and their customers through this incredibly difficult period,” he concluded.

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Low interest rates and property market recovery drive renewed home loan activity

Aerial view of Wollongong

Australia’s home loan market enters 2020 with renewed confidence after new lending figures showed the low interest rate environment combined with changes to benchmark interest rate buffers have helped lock in the recovery in mortgage volumes over the past quarter.

The AFG Index released today also revealed the exodus of homebuyers from the big banks continues, with market share of the major banks falling to an all-time low in the face of enhanced competition.

The AFG Index – which provides a quarterly snapshot of national home loan activity – reported $15.4 billion in home loan applications in the past three months, up 19 per cent on the same period in 2018.

While volumes were down 1.85 per cent on the September quarter, NSW recorded 25 per cent growth on the corresponding period in 2018, while Victoria was up 19 per cent and Queensland and South Australia posted healthy 17 per cent increases. Western Australia’s market may be showing signs of stabilization with flat results quarter on quarter but an increase of two percent on the same period in 2018.

More attractive lending conditions as 2019 progressed – reflecting a string of interest rate cuts, returning investors and more realistic interest rate buffers – have encouraged homebuyers to re-enter the market. Almost 29,000 mortgages were lodged in the three-month period, the second highest volume since 2018.

First home buyers accounted for 15 per cent of mortgages during the period – remaining at the highest level since 2013.

AFG Chief Executive Officer David Bailey said “We’re encouraged by the lending data. These figures show the national home loan market has consolidated the strong growth from the September quarter. We enter the new year buoyed by the healthy volumes in the second half of 2019, reinforcing the change in market sentiment during the year.

“It’s very clear that buyers have been enticed back to the market and the data is showing us that there is an incontestable trend away from the major banks. Consumers are empowered by the enhanced competition in the home loan sector generated by mortgage brokers and are reaping the benefits through greater choice and lower prices.”

Non-major banks accounted for 47 per cent of lodgements in the September quarter, the highest since 2007. For the first time more than half of the loans taken out by property investors were secured through non-major banks, while first home buyers (traditionally strong supporters of the majors) also voted with their feet with a record 36 per cent of loans arranged with a non-major bank.

“Homebuyers taking out principal and interest (P&I) loans are increasingly focused on the opportunities offered by the non-majors, with more than 45 per cent of P&I loans taken out with a non-major bank, representing the highest proportion ever.

The December quarter data showed Macquarie Bank and Citibank were the standout performers among non-majors in growing market share during 2019. For the majors, NAB continued to record strong growth, cementing a successful year of winning back customers.

“When examining the monthly breakdown for market share, the final month of the quarter in WA paints a more positive picture for the CBA stable. CBA and Bankwest combined received one in every three home loans – this figure represents half of all major lending volume in the WA market.

“For Westpac, it appears home borrowers put the money transfer scandal to one side after they offered $2,000 cash back and made improvements to their servicing calculator, delivering a lift from a consistent 6.5% market share for the previous five months, to 8.6% in December.

The average mortgage size was just under $539,000, compared to $508,000 in the same period last year, an increase of 6% and flat against the last quarter.

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Low interest rates and property market recovery drive record home loan activity

Australian suburban street

Home loan activity has rebounded strongly in the September quarter, with interest rate cuts and an active property market driving record mortgage volume, according to the AFG Index released today.

The Index – acknowledged as a reliable barometer of quarterly home loan activity across Australia – revealed a record $15.7 billion in lodgements in the three months to 30 September 2019. Volumes were up 21 per cent on the previous quarter and 11 per cent on the same period last year. More than 29,000 mortgages were lodged, the highest in almost two years.

The renewed momentum has accelerated the shift away from the major banks, with the market share of non-major banks climbing towards 46 per cent, the highest levels since the GFC more than a decade ago.

Multiple interest rate cuts this year combined with changes to serviceability have encouraged buyers back into the market, particularly customers purchasing their first property. First home buyers accounted for 15 per cent of mortgages during the period – the highest level in seven years.

The low interest rate environment has also cemented the trend away from interest-only loans, with record numbers of borrowers looking to pay down debt through a principal and interest loan. During the September quarter, 82 per cent of loans were principal and interest loans, the highest proportion in the history of the AFG Index.

AFG Chief Executive Officer David Bailey said “We have seen a significant change in the home loan market recently. Best-ever quarters in NSW and Victoria – buoyed by these record low interest rates, a rebound in the Sydney and Melbourne markets and changes to lending criteria – have fuelled the recovery in national numbers.

“The shift in sentiment is encouraging. With the impact of further cuts by the RBA yet to flow through the market, we anticipate the improved affordability will see positive momentum continue through to the end of the year and into 2020.

“There is no doubt customers are benefitting from the enhanced competition in Australia’s home loan market. Consumers are continuing to express a desire to seek out competitive offers. First home buyers, upgraders and mortgage holders refinancing have driven the market share of the non-major banks. From the perspective of loan volumes, we are now approaching a 50-50 split between the majors and non-majors. Something unheard of as little as five years ago.

“This represents a fundamental shift in the dynamic between lenders. Consumers are sending a very clear message that they want the choice and the transparency of a competitive home loan market in Australia and mortgage brokers are delivering.”

Non-major banks accounted for 45.9 per cent of lodgements in the September quarter, the highest since 2007. Macquarie Bank and AMP emerged as the big winners among the non-majors taking business away from the larger banks. Both lenders have more than doubled market share in the past 12 months.

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Competition heats up. Competition Index – June 2018

The AFG Competition Index released today shows further evidence of a structural shift in the Australian lending market as non-major lenders again seize market share from the majors. Non-major lenders have seen their overall market share of new loans hit a record 40.97% in May 2018.

AFG General Manager – Broker & Residential, Mark Hewitt explained the results: “The major lenders’ share of new business is declining, with their overall market share continuing a five-month slide to be sitting at 59% at the end of last month.

Among the majors Westpac and its subsidiaries Bank of Melbourne, Bank SA and St George have been hardest hit, with each of their brands recording a drop in market share.

“Mortgage brokers are drivers of competition in the Australian home lending market. A consumer walking into a bank branch has a choice of a handful of products that may meet their needs. Consumers talking to an AFG mortgage broker have access to thousands of alternatives depending upon their individual circumstances. Many of those products are from the non-major lenders, and many of those lenders do not have a branch presence,” he said.

The borrowers turning to non-major lenders in greatest numbers are those seeking to fix their interest rates, with market share for the non-majors in this category steadily increasing to finish the quarter at 32.57%.  “ING and Suncorp are the non-major lenders of choice for fixed products, with their share of the fixed rate market sitting at 6.08% and 5.39% respectively.

“The major lenders have been pulling back from the investor market to meet regulatory caps and as a result the non-majors are filling the gap in the market,” said Mr Hewitt. “Non-major market share among investors rose from 33.52% in February to 42.35% at the end of the quarter – an increase of 26%.

“Macquarie is proving popular with those looking to refinance, recording a market share overall of 5.63% but 8.33% in the refinancing category. Virgin Money has made rapid inroads in the short time they have been on AFG’s panel, with their share of the market in the same category rising from 0.1% to 0.86% in three months.

“First home buyers looking for a simple, low cost mortgage product have found it in AFG Home Loans with market share for AFG’s white label products rising across the quarter for this category from 4.76% in February to finish at 6.3% by the end of May.

Teachers’ Mutual Bank also recorded an increase in market share among first home buyers, lifting from 2.8% to 3.14% for the quarter.

These figures show that competition is alive and well in the Australian lending market.  The continued preference by consumers for mortgage brokers and the choice they deliver over major bank branches, demonstrates that brokers are delivering the right consumer outcomes,” he concluded.

 

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Mortgage brokers shopping around for their clients. Competition Index – March 2018

The release today of the AFG Competition Index shows the flow of business to lenders has once again been volatile, highlighting evidence that mortgage brokers are the only ones equipped to provide Australian borrowers with a complete picture of the many lending options available to them.

AFG General Manager Broker & Residential, Mark Hewitt explained the results: “The gap between the first placed major lender, Westpac at 14.21% of the market and third placed ANZ at 12.32%, is the closest it has been for some time.

“As AFG has stated many times, a consumer dealing directly with a lender has limited negotiating power or knowledge of the interest rates and lending criteria offered by competitors. This has been further validated by the findings of the interim ACCC Residential Mortgage Price Inquiry. The presence of the mortgage broking channel is one of the few drivers of competitive tension in the Australian lending market.

“Whilst the majors’ market share lifted a couple of percentage points across the quarter, rising from 62.51% in November 2017 to 64.03% at the end of February, three of the four majors went backwards.

“ANZ dropped from 14.93% in November 2017 to 12.32% at the close of the last quarter. CBA’s share of the market dropped from 14.99% to 13.63%, and their subsidiary Bankwest dropped from 3.74% to 3.35%.

NAB also recorded a drop, from 8.57% in November 2017 to finish the last quarter at 7.67% of the market.

“Only the Westpac group of brands, Westpac, St George, Bank of Melbourne and BankSA grew, with their market share lifting from 20.28% in November 2017 to 27.05% at the close of the last quarter,” he said.

“Interestingly, the Westpac group’s major gain came in the area of fixed rate loans with their share of that product type increasing from 23.63% to 44.24% of the market.

In a sign the majors are again open for business for investors, their share of that segment of the market has lifted from 64.82% in November 2017 to finish February at 66.78%.

The non-majors’ market share is now at 35.97%. “Amongst the non-majors AMP recorded an increase in market share and lifted from 2.27% to 4.62% and Homeloans recorded an increase from 0.14% to 0.33%. WA-based Keystsart, lifted from 0.18% to 0.26%.

Suncorp fell from 4.21% to 2.81% and Macquarie contracted from 4.66% to 4.26%. Bank of Queensland lost almost 50% of their share to finish February at 0.86% of the market.

The non-majors were once again favoured by First Home Buyers, with their market share in that category lifting from 31.31% to 33.38%.

Majors lose focus as all eyes on Canberra. Competition Index – December 2017

AFG has today released Competition index figures for the final quarter of 2017.  Once again, Australia’s major lenders have taken a hit with their market share now down to a post-GFC low of 62.57% of the mortgage market. The majors lost ground in all categories since the time of the last AFG Competition Index, including a drop of more than 3% in refinancing and more than 2% in fixed rates.

AFG General Manager – Broker and Residential Mark Hewitt explained the results: “The major banks have been under intense scrutiny by government and the regulators and it is probably no wonder if they have been distracted,” he said.

“With the recently announced Royal Commission into the banking sector we all hope lenders can respond whilst still maintaining a focus on their customers.

The Royal Commission, and the industry need to focus on how competition can be further improved and this should include the impact the government guarantee has on competition.

“The Westpac group as a whole were the only ones to make up any ground, up from 19.19% at the time of the last AFG Competition Index to finish the quarter at 20.33%.

ANZ lost the most ground amongst the major banks, down 3.5% for the quarter.

The non-majors now enjoy a market share of 37.43%.

“The non-majors picking up market share were Macquarie, with an increase from 2.91% to 4.70% and AFG Home Loans with a lift from 8.88% to 10.15%,” concluded Mr Hewitt.

Majors back in the hunt: Competition Index – August 2017

In a sign of renewed commitment to the broker channel, major lenders have taken back control from the non-majors with a lift in market share across the last month according to the latest AFG Competition Index.

After a low of 63.39% in June 2017, the majors have risen each month to round out the quarter at 65.90%,” said AFG General Manager of Residential and Broker Mark Hewitt.

“Fixed rate products have recorded the largest increase with the majors now claiming 74.8% share in this category. ANZ is taking the lion’s share of fixed rate business jumping from 10.51% in June to 20.82% by the end of the quarter,” he said.

This rise has largely been at the expense of Westpac, which recorded a drop of more than 7% over the same period.

“Westpac also fell back in the Investor category, dropping from 16.92% in June to 12.91% at the end of August. ANZ have also taken the lead in this category, with a lift from 13.22% to 19.99% over the quarter.

“ANZ is also appealing to those seeking to refinance,” he said. “Their market share amongst refinancers has jumped from 15.22% to 18.5% across the quarter.”

Amongst the other major lenders, CBA rebounded from 12.45% total share at the start the start of the quarter to finish on 14.25%.

In the non-major category, AFG Home Loans finished the quarter with a market share of 8.85% as a result of share gains in refinancing, investor and first home buyer categories.

Suncorp also proved competitive over the quarter averaging almost 5% total market share.

“AFG also welcomes Credit Union Australia (CUA) and Homeloans Limited to our panel and we look forward to introducing these lenders to our brokers”.

“The presence of these additional leading non-major lenders provide increased choice for consumers looking for finance,” he said.

Competition Index – June 2017

Non-majors step up

Data out today would suggest Australians are testing the competitiveness of the lending market with AFG data showing the non-major lenders picking up nearly 35% of the market, according to the latest AFG Competition Index.

AFG General Manager of Sales and Operations, Mark Hewitt said the data reaffirms the value the mortgage broking channel delivers. “Mortgage brokers deliver true competition in the lending sector and provide real choice for consumers. If a lender is out of the market on service or price they will look beyond the majors to meet the needs of their client.

“Today’s figures show CBA continues to slide with their overall market share down from 20.5% this time last year to 11.8% last month.

“With CBA, AFG believes this is the result of a deliberate strategy to pull back from the investor and interest only markets to meet the lending caps mandated by APRA,” said Mr Hewitt.

“When combined with their subsidiary Bankwest, CBA has dropped their total market share from 25.5% to 15.5% in the same period.

Amongst the other majors, NAB is continuing to win market share.

“NAB have benefited from their recent actions to align their broker products with their direct channels,” he said. “Until recently there was a difference between the products made available to their direct and broker-introduced customers which created confusion for borrowers.”

“Westpac has taken the lion’s share of the fixed rate market for the majors, doubling their share from 10.98% this time last year to finish May 2017 with 22% of fixed rate mortgages.

“Westpac subsidiary St George is also picking up market share of those seeking to refinance.

AFG has 39 home loan lenders on its panel and flows of business to the non-majors are significantly higher through brokers than in the broader lending market. Last month 34.95% of all mortgages lodged by AFG brokers went to the non-majors. This is in stark comparison to the 17% market share of the non-majors outside of our channel.

“Suncorp is the big winner for the non-majors, picking up market share in the fixed rate, investor and refinancing categories.

“Increased competition delivers value to the consumer. Many of the non-major lenders on our panel do not have a branch network. Without the competitive tension mortgage brokers bring to the market, prices would inevitably rise,” he concluded.

Download full report: AFG – Competition Index – June 2017

AFG Competition Index – March 2017

Major lenders slide

Australia’s major lenders have again taken a hit as the non-majors continue to appeal to those seeking to finance a home. The latest AFG (ASX:AFG) Competition Index shows the majors’ share of the market dropped again to 65.25% to continue the trend of the last six months.

The recent political spotlight on the major lenders may encourage them to assess their competitive position as they once again fall out of favour with consumers. The non-major lenders have increased their market share to a post-GFC high of almost 35% across the quarter.

“The non-majors have continued to take market share from the majors this quarter, particularly among those seeking to refinance. Their share of the refinancing market grew by 6.5% with the big winners being AMP and ING,” said Mr Hewitt.

The non-majors also gained ground with those looking to fix their interest rate. Non-majors recorded an 8% lift in market share for fixed rates with ME Bank and ING leading the way.

First home buyers were also drawn towards the non-majors with a 2% gain in non-major market share evident from this group.

“Recent changes made by the Victorian state government to exempt first home buyers from stamp duty if they are purchasing a property for less than $600,000 will make this segment of the market one to watch,” said Mr Hewitt.

This latest move comes on top of a doubling of the first home buyers grant for regional purchases in that state and news of a $50 million pilot program designed to help people co-purchase a dwelling with the Victorian government set to launch next year.

Download full report: AFG – Competition Index – March 2017

AFG Competition Index – December 2016

Refinancers flock to non-majors

AFG (ASX: AFG) today reported a jump in the number of Australian mortgage holders looking to leave the country’s major lenders.  Following on from the previous quarter, consumers refinancing their home loans have again turned their backs on the major lenders in their search for savings, according to the latest AFG Competition Index.

AFG General Manager of Sales and Operations, Mark Hewitt explained the shift. “In terms of overall mortgage sales the majors and their subsidiaries slipped by 8.1% to close the quarter with 64.1% of the market. This is a post-GFC low.

The resurgence of the non-majors has largely been driven by those borrowers seeking to refinance. “The non-majors lifted their share of the refinancing market to 43.2% across the last quarter,” said Mr Hewitt.

“Suncorp with an increase of 3.3% and AMP with a lift of 2.1% led the way with refinancers, largely at the expense of the Westpac stable” he said.

Westpac and its other brands, Bank of Melbourne, Bank SA and St George dropped its share of total mortgages by a combined 8.4% for the quarter.

The majors have also pulled back from the investor market, with their share of that segment dropping by 7.0% for the quarter.

The Reserve Bank of Australia (RBA) decision to leave the official interest rate on hold at its December meeting has proved largely irrelevant to lender policies, with many lenders continuing the practice of lifting interest rates outside the RBA cycle.

“In the past week many lenders have been increasing fixed and variable interest rates. They have been targeting areas such as investment loans and this is often a trigger to encourage consumers to shop around,” said Mr Hewitt.

“In the current environment it is worth picking up the phone to your mortgage broker to help understand what is happening in the market and that your loan is still the most appropriate for your circumstances.”

Download full report: AFG – Competition Index – December 2016