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.

Download full report here

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