Housing leads the way

Australia’s housing market continues to lead the country’s economic recovery with Australian Finance Group (ASX:AFG) brokers lodging a record $20.6 billion in home loan applications for the third quarter of FY21. This represents a 3.79% lift on the prior quarter and a significant 34.32% increase on the same period last year.

AFG CEO David Bailey explained the results: “Record low interest rates, effective government stimulus packages and an improving consumer outlook have contributed to increased activity.

Looking around the country, New South Wales lodgements are up 9.37% on last quarter and 40% on Q3 FY20. Victoria is up 6.60% on last quarter and 24.86% on Q3 FY20. “Historically, Q3 usually records slower growth than Q2 so the solid results in NSW and Victoria are even more impressive.

In South Australia, lodgements are up 1.51% on last quarter and up 33.88% on the same period in 2020. In Western Australia, lodgements are down 7.61% on the previous quarter, which was its strongest period since 2015. Lodgements in WA are up 45% on Q3 FY20. The Northern Territory is up 5.79% on last quarter and down 13.26% on the same period last year. Queensland is down 2.66% on a very strong prior quarter and up 37.38% on Q3 2020.

“Rising house prices have contributed to a fall in Loan to Value Ratios (LVR), the national average LVR is down from 73.3% to 71.9%. The national average mortgage size has increased by 5.9% to $574,948 however rising house prices are outpacing loan sizes and maintaining safety buffers, as reflected in the reducing LVRs.

“Highly competitive fixed rates, largely driven by the Big 4 banks’ access to cheap government funding has seen borrowers locking in their mortgages, with the percentage rising from 29.3% to 34% for the quarter.

First Home Buyer (FHB) activity has slowed, down from 22% to 18%, but this figure is still historically high. “The state and federal government FHB incentive schemes have done their job and likely pulled forward some demand,” said Mr Bailey. Refinancers are steady at 22% and the percentage of Upgraders has lifted from 42% to 43%.

“With interest rates at record lows and yields slowly improving in some markets, Investors are edging back into the market, with an increase from 21% last quarter to 23%. The longer-term average for Investors’ share of the market is around 35%.

“Interest Only lodgements are up from 12% to 14%, however these are still historically low as borrowers take the opportunity to pay down the principal during this period of record low interest rates.

The Big 4 Banks and their stable of brands captured 57.1% of the market, which is down from a high of 66.8% in the final quarter of FY20 which coincided with the peak of nationwide lockdowns. NAB was the only one of the Big 4 and their brands to record an increase in market share while the others all lost ground. Notable movements amongst the non-majors were AFG Home Loans up from 7.76% to 9.10% and Macquarie down from 11.45% to 9.93%.

“With such a competitive lending market and increased market activity, lender turnaround times continue to rise, up from 25.2 days last quarter to 27.1 days. This is the highest it has been at any point over the last three years.

“As our country recovers from the disruption of the pandemic, a resilient housing market built on sound lending standards will help keep Australia’s recovery ahead of many of the world’s economies,” he concluded.

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Record quarter as homebuyers on the move

Australian Finance Group (ASX:AFG) has today announced a record-breaking quarter with more than $19.9 billion of home finance lodged by AFG brokers across the second quarter of the 2021 financial year.

AFG CEO David Bailey explained the results: “The national figure represents an increase of 9.5% on the first quarter of the 2021 financial year and an increase of 30% on the corresponding quarter last year.

“Gains were recorded across the country – New South Wales up 3.5% for the quarter, Queensland up 7.8%, South Australia up 0.4%, Victoria up 18% and Western Australia recording a 13.3% jump on Q1 2021. The Northern Territory recorded a drop of 10%.

“With travel off the agenda for many, the home has become even more important and 42% of lodgements were for those upgrading their homes.

“Government incentives for First Home Buyers continue to support those looking for their first home with 22% of lodgements being made by those taking their first steps into the housing market,” he said. “A record high Loan to Value Ratio of 73% is due to the high proportion of First Home Buyers who typically have smaller deposits.

The percentage of Investor loans being taken out remains at an all-time low of 21%.

“The market is well aware that low interest rates are likely bottoming out and this has seen the percentage of customers choosing a Fixed Rate product still high at 29.2%,” he said.

“Low interest rates on offer has also meant homeowners are taking the opportunity to pay down their debt faster with a record 88% choosing a Principal & Interest product over an Interest Only loan. The average loan size is also at record levels, coming in at $544,359 for the quarter.

“With the four big banks leveraging their funding advantage through very competitive pricing and cash back offers, smaller lenders’ share of the market has remained at 41%.

“The Westpac stable of brands – Westpac, BOM, BankSA and St George – have increased their combined market share by 2.5% to be sitting at 18.7% while CBA group – CBA and Bankwest – have dropped 4.7% to now be holding 20.7% of the market.

The federal government has outlined the importance of access to credit for the economic recovery of the country. To help gauge the flow of activity in the market and the time involved for a residential application to progress to formal approval, AFG will now include a weighted average Lender Turnaround Time (LTT) indicator in the AFG Index.

“The LTT analysis shows the average number of days from submission of the loan application
by the broker, to the lender providing formal approval, is sitting at 25 days. Reflective of the level of activity in the market, this is the highest it has been at any point over the last three years and a blow out of around 4 days from 12 months ago,” he concluded.

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Record-breaking quarter for AFG brokers

Modern 2-storey home

(ASX:AFG) The AFG Index released today shows another period of growth for AFG brokers to close out the first quarter of the 2021 financial year. More than 35,400 residential loans were lodged, with volume surpassing $18 billion for the quarter, eclipsing last quarter’s record-breaking levels.

AFG CEO David Bailey explained the results: “The first quarter of the 2021 financial year has seen AFG record its highest-ever lodgement volume and represents a lift of just over 8% on last quarter. Against the corresponding period in FY2020 it is 16% higher. The surge was largely driven by an uptick in First Home Buyers as they make the most of federal and state government incentives to support the country’s construction market.

“Mortgage brokers have played a vital role in ensuring first home buyers were in prime position to access the various incentives and understand their choices. A total of 23% of all lending applications processed by AFG brokers during the quarter were for those purchasing their first home.

“Whilst remaining stable, the refinance boom evident in the months during the broader national lockdown now appear to have returned to more traditional levels, whilst upgraders have maintained a strong position in the market,” he said. “Those who are confident in their own personal financial circumstances during the pandemic are looking for opportunities to move to a larger home.

“As brokers have navigated the challenges of this period of market disruption, their role as a trusted support for their customers has meant they have continued to assist customers across the country. Whilst understandably Victorian numbers have not reflected the broader Australian experience, the result recorded is still in line with that recorded in the last quarter of FY20, and still ahead of the same quarter last year.

“With record low interests expected to be maintained for an extended period property prices are being supported by a strong underlying demand for residential mortgage finance.

“Looking across the country, the Victorian lockdown has resulted in a flat result quarter on quarter, and the Northern Territory recorded a drop, whilst growth has continued in all other states. When compared to the same period last year, the increases show an alignment to the levels of lockdown in response to COVID-19 that have been experienced in each state – New South Wales was up 12.5%, Queensland and South Australia were both up 31% and Western Australia was up 38%.

Principal and Interest (P&I) loans continue to track upwards as more customers take advantage of the lower interest rates on offer to pay off their mortgages faster.

“Once again, although not reported in the AFG Index, a look at the number of AFG Home Loans’ securitized product customers seeking assistance with their mortgage payments provides an insight into current market conditions.,” he said. “Pleasingly, the numbers have further decreased. As of 8 October, the numbers of customers with deferral arrangements for their P&I loans has dropped from 4.34% at the close of last quarter to 0.87%. In addition, 2.22% of AFG Home Loans securitized product customers have switched from P&I to Interest Only repayment arrangements. This is down from 4.38% at the end of FY20.

With tight regulations affecting rental markets the number of people applying for Investment loans also dropped to its lowest level since December 2012, to now be sitting at 21% of the market.

“After a tough six months competing against cash-back offers and competitive fixed rates from the major lenders, the non-majors have regained market share, rising from 33.2% at end of FY20 to 41.1% in FY21 Q1

“The major lenders’ market share dropped from 66.8% at the end of the 2020 financial year, the highest level since 2017, down to 58.9% at the close of Q1,” said Mr Bailey. “This trend was most evident when looking at the majors’ share of refinances, which tumbled from a high of 71.1% at the end of the 2020 financial year to 58.1% at the close of Q1 2021.

“ANZ was the standout, recording a significant drop in market share, sliding from 25.53% back to 9.67%. The Westpac Group seemed to be the beneficiaries, rising from 10.37% to 16.27% of the majors’ market share.”

The non-majors experienced growth across all buyer types, with the biggest rises being recorded by Refinancers and Upgraders. The non-majors’ share of refinances jumped from 28.9% to 41.9% in FY21Q1 and market share for those upgrading increased from 34.4% to 41.2%.

Queensland and New South Wales lead the country for the non-majors, with market share increases in both states increasing by 10% and 8% respectively. Among the non-majors, Macquarie recorded the largest lift in market share, rising from 6.74% to 10.25% for the quarter.

“The national average loan size is decidedly lower, dropping from $542,555 at the close of the last quarter to $514,532. This drop is largely driven by the profile of borrowers, in this case the presence of more First Home Buyers in the mix. This corresponds with a small uptick in LVR, again a reflection of the volume of First Home Buyers in the data.

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Brokers called upon as market moves

Street Scape

(ASX:AFG) The AFG Index released today shows the role of broker has never been better illustrated than over the past few months. The dislocation to the economy and the lives of hundreds of thousands of Australian mortgage holders brought about by the COVID-19 pandemic has meant AFG brokers have been a reliable and important avenue for customers seeking assistance to navigate these uncertain times.

AFG CEO David Bailey explained the results. “This quarter saw AFG record its largest quarterly lodgement result at almost $17 billion. This is a 30% increase on the same time last year.

Breaking down the numbers by state, a comparison to Q4 19 is as follows:

State 12 Month Increase
NSW +36%
QLD +34%
SA +21%
VIC +23%
WA +34%
NT +36%

“Banks closing branches and redirecting these resources towards dealing with hardship cases has meant that brokers have been spending considerable time working through the options for those clients who have taken the opportunity to examine their circumstances and make changes to their financial arrangements.

Given these unusual times, AFG has again elected to disclose additional month by month data.

Month Lodge # Lodge Vol Avg Loan Inv % First Home Buyers % Refinance % Upgrader % Interest Only % Principal & Interest %
Apr-20 9,405 $5,217,890,839 $554,800 26% 12% 38% 36% 17% 83%
May-20 11,269 $6,127,419,783 $543,741 26% 14% 36% 36% 16% 84%
Jun-20 10,406 $5,564,824,672 $534,771 22% 21% 23% 42% 14% 86%

“It has been very interesting to see where some of the mortgage activity has come from. Ending the previous quarter, refinancing activity was extremely strong. As some of the refinance incentives from the majors wound down, the market responded in a different manner with a flurry of activity for first home buyers aided by the various government incentives, and an increase in upgraders from those more confident in their financial position.

“Brokers assisting customers to find savings on their home mortgage repayments has seen refinancing activity on a rollercoaster. From 32% in the December quarter refinancing is now sitting at 23% however monthly data shows significant movement during the height of the pandemic, with refinancing activity rising to 38% in April as brokers helped borrowers shore up their positions.

“Supported by federal and state government stimulus packages, First Home Buyers have seized their opportunity to enter the market. First Home Buyer numbers surged to 21% in June, up from 12% in April. In fact, the federal government’s First Home Loan Deposit Scheme saw the largest amount of applications for guaranteed loans, 45%, were made through the broader mortgage broking channel.

Upgraders increased from 36% at the beginning of the quarter to 42% in June.

“Across the past few months, we have witnessed a significant shift in mix of business towards the country’s major lenders. The major banks have used their balance sheet strength to take back market share from the non-major lenders. Once again, it is worth examining the monthly activity for the full picture of movement in the market across the quarter.

Apr-20 May-20 Jun-20
ANZ 28.45% 36.87% 10.16%
CBA 15.21% 17.11% 23.66%
Bankwest 3.75% 4.12% 6.05%
NAB 11.10% 4.48% 7.71%
Westpac 6.93% 4.30% 6.27%
BOM 1.57% 1.05% 2.33%
Bank SA 0.39% 0.27% 0.41%
St George Bank 2.62% 1.93% 3.37%
Major Total 70.01% 70.13% 59.96%

“After peaking at around 70% in the quarter – which is the highest level since 2017 – the flows of business to the major lenders settled back down to 60% in the month of June.

“ANZ was the big winner among the majors, from 9.92% market share last quarter, rising as high as 36.87% in May driven by cash back offers and low fixed rate products. They increased their market share of fixed rate products to 33.66%.

“CBA benefitted from their consistency of service and back office efficiency to reap the reward with their share of the market rising from 14.7% last quarter to 23.66% by the end of June.

Market share of the Westpac group suffered due to a blow-out in turnaround times as they slipped from 20.14% at the close of Q3 to 12.38% at the end of June.

“Extremely competitive offers from the major lenders including cash incentives of up to $4,000 led to a drop in market share for the non-majors. However, processing bottlenecks began to impact turnaround times for the majors by the close of the quarter and the non-majors have begun to take back some ground.

“The role the broker continues to play during this COVID crisis by assisting their clients in making considered choices around their individual home loan circumstances should not be underestimated.

As the pandemic took hold the country’s lenders have responded rapidly to borrowers and have deferred or altered loan arrangements to help homeowners having difficulty meeting repayments.

“AFG Home Loans is no exception. Whilst not reported in the AFG Index, it is pleasing to note that the securitized lending business of AFG has seen the number of customers accessing assistance with the deferral of their repayments decrease from 4.98% in May to 4.34% at the close of the quarter. The number of customers choosing to cease the capitalization of unpaid interest onto their existing home loan by switching to Interest Only payments has slightly increased from 4.30% in May to 4.38%.

“At this time of dislocation in the market mortgage brokers continue to assist their clients by securing better interest rates, fostering competition, and, as evidenced by the lift in numbers, enabling first home buyers to access the market more efficiently with a higher level of certainty.”

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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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First signs of recovery in home loan market as non-major market share reaches record high

Story Bridge Brisbane

The first glimpses of recovery are emerging in the Australian mortgage market, with the AFG Index released today revealing an increase in lodgements for the first time in a year.

Non-major lenders are driving much of the activity, responsible for a record high 42 per cent of lodgements and for the first time accounting for more than one in every three mortgages for first home buyers.

The AFG Index recorded more than $13 billion in lodgements in the three months to June 30, representing a 12 per cent increase on the last quarter. Despite the turnaround in the last quarter, the numbers remain 11 per cent down on the same time last year.

AFG Chief Executive Officer David Bailey said “There are tentative signs of increased activity with both lodgement numbers and volumes up significantly for the quarter. It will be important to see the impact of recent moves by the RBA but we remain cautiously optimistic.

“It remains relatively subdued out there in Victoria and New South Wales, with both states recording an 11 per cent dip on the same time last year, offset by activity in the smaller states.”

South Australia was ostensibly flat, whilst Queensland and Western Australia recorded slips of thirteen per cent and seven per cent respectively. With respect to Western Australia, while the national figures report a quarterly uplift of 12 per cent, the growth in WA was slightly less at 2.8 per cent. Total lodgements for WA were just under $1.4 billion. Three years ago, that number was more than $2 billion.

Average mortgage size is at an all-time high of almost $515,000, with South Australia the only state to record a drop to now be sitting at $402,473.

Mr Bailey said Investors are benefiting from the relaxation in regulatory constraints and have edged back up to 28 per cent, the same level as Q4 2018.

“With investor lending up, it is interesting to also note the major banks’ responses to the recent cash rate reductions where investor loan rates have seen larger rate cuts passed on to customers. With those APRA-related restrictions now lifted, this could signal a new battleground for customers.

“After a period of slow growth, Refinancers have lifted to 28 per cent, but this is still a long way from the activity seen in 2016 when they recorded levels as high as 39 per cent. Homeowners looking to Upgrade have dropped back to the same level they were at in the final quarter of 2017.”

The First Home Buyer segment of the market has been consistent with recent quarters to be sitting at 14%. The split of where these customers are going to obtain finance for their first home has shifted further towards the non-majors. In the fourth quarter, a record 35 per cent of all first home buyer lodgements went to the non-majors which is the highest split since 33 per cent was recorded way back in Quarter 2 2015.

In further evidence of the competitiveness in the market, an increasing amount of Interest Only finance was also provided by the non-majors.

The non-majors recorded close to 45 per cent of all Interest-Only home loans to the market – this represents a significant jump on last quarter and the same time last year when it was around 4 in every 10 Interest Only home loans.

The combined impact of the Interest Only and First Home Buyer uplifts in the final quarter of the financial year has seen the country’s non-major lenders’ market share reach a record high, with 42.3 per cent of homebuyers choosing to lodge their mortgages with a non-major lender. Across the country, NSW recorded the most competitive race between the major and non-major lenders for the quarter, with less than eight per cent separating the respective market shares.

Mr Bailey said “With the RBA moving to reduce the cash rate twice recently, it will be interesting to watch the market and see if people are calling the bottom and choosing a fixed rate product. Again, the non-major lenders seem to be in the hunt. Almost 37 per cent of customers choosing a fixed rate loan were doing so with a non-major lender. This is a high for the year – this number in March 2019 was only 20 per cent. Of the fixed rate loan providers in the market, the Westpac house of brands provide one in every four fixed rate loans, which incredibly is down from nearly 38 per cent in April.”

Among the non-majors, Macquarie’s market share grew steadily across the quarter and finished June just shy of 10 per cent. ING has also been regaining ground and finished the quarter at four per cent, after dropping to less than two per cent in March.

Among the majors, CBA increased market share to finish June at 18 per cent and NAB finished a tough quarter to reach seven per cent by the end of June. NAB’s gains appear to be at the expense of the Westpac group of brands with Westpac, Bank SA, Bank of Melbourne and St George all recording a fall in market share.

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Home loan activity falls to lowest in five years on back of credit squeeze

Fresh evidence of the fragile state of Australia’s home loan market emerged today, with new figures revealing national lending activity has slumped to the lowest levels in five years.

The AFG Mortgage Index and Competition Index released today showed lending volumes across Australia in the first three months of 2019 dropped 10 per cent on the previous quarter. Volumes in the March quarter were 15 per cent lower than the same period last year.

The 23,049 loans lodged during the quarter represented the lowest number in six years, while the $11.6 billion volume was the lowest quarterly figure since 2014.

AFG Chief Executive Officer David Bailey said “Today’s numbers provide stark evidence that the lending environment has significantly deteriorated. It’s a wake-up call for policymakers. The softening of the residential market across the country is a real concern, with Sydney and Melbourne driving the downturn and some states enduring a prolonged period of falling activity.

“Despite moves by regulators to encourage activity, investment lending remains at an all-time low of 26 per cent amid the well- documented concerns around property values, particularly on the eastern seaboard.

“Today’s data confirms we have reached a critical time in the housing market cycle and we would urge policy makers to tread carefully in any regulatory responses flowing from the Royal Commission. This is a time for considered policy formulation that considers the full potential impact on the lending market. It is clear, the broader implications for the Australian economy are huge if we get it wrong.

“The volume of loans written in WA for the quarter of just over $1.3 billion represents the lowest volume seen in WA since the inception of the AFG Mortgage Index. Whilst there has been some talk of WA moving into a brighter resources-led period of sunshine, it is clear the local economy needs broader stimulus.”

The tight lending market and falling house prices have contributed to a decline in NSW volumes of almost 20 per cent on the same quarter in 2018. Victoria is down 16 per cent over the same period.

All other states are also much lower than the same time last year. The only lift in volume over the quarter was seen in the Northern Territory, with an increase in the average loan size and a decrease in Loan to Value Ratios.

Following the relaxation of APRA-imposed caps on Interest Only (IO) lending, AFG noted a small lift in IO lending driven by the major lenders.

Four years ago, fuelled largely by strong investor demand, Interest Only loans accounted for around 60 per cent of all loans written. Now, with investor loans accounting for a quarter of new business, Interest Only loans account for just 19 per cent of lodgements.

The breakdown of mortgages between major lenders – the ‘big four’ banks and their affiliated brands – and non-majors highlights the crucial role mortgage brokers play in delivering competition to the home loan sector.

The AFG Index showed the market share of non-majors has now been locked in above 40 per cent for more than a year despite a marginal increase for the majors to 58.6 per cent of total lodgements.

Mr Bailey said “The value mortgage brokers deliver by facilitating a competitive lending environment is most starkly shown by the ongoing decline in the market share of the major banks, which peaked in Q3 of 2013 at 78.2 per cent. Outside of the mortgage broking channel, the majors have control and dominate the market. The distribution capability provided by mortgage brokers enables the country’s non-major lenders to compete.

“With the sole exception of First Home Buyers, who remain the last bastion of major bank lending, the growth in non-major lending has been broadly uniform across all other customer types.”

Major lenders are ahead on fixed-rate loans, with a steady increase across the quarter, leaving four out of five homebuyers that chose the certainty of fixing their interest rates doing so with a major lender.

Examination of the overall volumes going to the major bank reveals the big losers over the past six months have been ANZ and NAB. NAB’s share has halved over the past six months to now be as low as five per cent.

The Westpac stable of brands emerged as big winners, as has Bankwest – whose renewed focus on broker and customer service has paid strong dividends in Western Australia. Bankwest accounts for more than one in every five WA originations. Together with CBA, Bankwest has a stranglehold on more than 35 per cent of all loans written in the State.

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More competition than ever in Australia’s home loan market thanks to mortgage brokers

Australia’s home loan market is enjoying record levels of competition driven by mortgage brokers, with new lending data released today revealing the market share of non-bank lenders is higher than ever. 

And latest industry figures reveal consumers are increasingly relying on mortgage brokers for help, with three out of every five mortgages in Australia now generated through mortgage brokers.

As the financial services sector prepares for next month’s release of the Financial Services Royal Commission’s final report, the AFG quarterly Mortgage Index confirmed the crucial role played by mortgage brokers in creating a competitive home loan market.

It also provides a timely warning to policymakers of the importance of ensuring the availability of credit and consumer choice do not become sacrificial lambs in the regulatory response to the Royal Commission recommendations.

AFG lodged $13 billion in home lending applications for the final quarter of 2018, down 8% on the prior quarter. Credit tightening is having an impact on volumes in every state – however, the Sydney and Melbourne property markets have been the most significantly impacted.

“Customers must be kept first and foremost in any discussion of changes to the financial sector,” said AFG Chief Executive Officer David Bailey. “Although overall volumes are down our brokers still lodged over 25,000 applications for borrowers during the quarter. This is a fraction of the number of consumers they help with post-settlement and ongoing reviews and support.

“AFG now has more than 50 lenders on our panel and in clear evidence of the vital role mortgage brokers play in delivering a competitive home loan market, non-major lenders’ market share is at a record high of 42.1%.

“The non-majors are becoming an increasingly important part of the assistance brokers provide to customers. Penetration has increased across all categories of borrowers, with non-major market share gains recorded for Refinancers (now 46.8%), Upgraders (42%), First home buyers (32.1%) and Investors (43.4%).”

New Mortgage & Finance Association of Australia (MFAA) data shows mortgage broker market share has grown to 59.1%, reinforcing that consumers are increasingly turning to brokers for their expertise as the market becomes increasingly complex.

The record market share for mortgage brokers was the strongest evidence that consumers were more than satisfied with the customer service provided by brokers, Mr Bailey said.

“A spike in those choosing to fix their interest rates indicates borrowers are bracing for more bank-led rate rises, with quarterly volumes increasing from 19% to 23.1%.

“Notably, the major lenders’ market share of Interest Only and Investment lending has stabilised after APRA’s easing of caps.”

Emphasising the competition the non-majors bring to the market, Mr. Bailey said that Australians need access to a competitive and fair lending landscape and the tens of thousands of small business people across the country working in the mortgage broking industry strive to deliver that service to their clients every day.

“Politicians and policy makers should not lose sight of the enormous value Australian consumers place in the services that these small businesses provide.

“We are yet to see the final report from the Banking Royal Commission, but we remain concerned that some of the testimony we witnessed was clearly aimed at driving consumers back into the big bank branches,” he said.

“Any recommendations flowing from that skewed view that would marginalise the mortgage broking industry would result in a very poor outcome for the economy and hurt the very consumers the Commission was aiming to protect.

“As an industry that relies on customer recommendations, today’s figures demonstrate that consumers are overwhelmingly satisfied with both the service provided by mortgage brokers and the real benefits of competition that we deliver. Consumers won’t want to lose those benefits as part of the industry response to the Royal Commission.”

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