Home Loan Lenders Bite Into Banks' Hold On Market
Sydney Morning Herald
Friday July 26, 1996
THE National Australia Bank, Westpac and the regionals have in recent years snatched sizable chunks of the market share of Australia's dominant home lender, the Commonwealth Bank of Australia.
Forget credit cards and other types of lending; the home loan market is still the battlefield of Australia's largest lenders.
It is hard to believe, but the present battle for mortgage lending is hurting the lenders - and the customers may be the winners.
The driving force for change is coming from lenders other than the banks. In the past two to three years, mortgage originators, led by Aussie Home Loans and RAMS, have made strong inroads into the banks' market share as a wave of bank customers have sought to refinance their loans.
The managing director of the Commonwealth Bank, David Murray, has already warned that the bank's profits are likely to come under pressure next year because of tough competition.
While no figures give a complete picture of the impact of these specialist lenders, industry estimates put their present market share at about 13 per cent of all new commitments, a significant increase from 6.2 per cent in May 1995.
A recent analysis by J. B. Were & Sons' banking analyst, Alastair Hunter, says the mortgage managers have established themselves in the home loan market and he believes their target market share level of 20 to 25 per cent is achievable.
The managing director of the interest rate monitoring group Cannex, Andrew Willink, says the banks had realised they had to go head-to-head with the specialist lenders and establish their own no-frills loans. "The two markets are going to converge. When that happens where the rates are not going to be too different, there's going to be continued ration- nalisation in both," he said.
While the banks have ridden the roller-coaster of interest rates and the building societies have had virtually no growth in lending in the past two years, the number of homes financed by "other lenders" has grown exponentially.
According to Australian Bureau of Statistics housing finance statistics, the number of homes financed in May 1996 by "other lenders" (which include specialist lenders) was 4,450 - 79.9 per cent higher than in 1995.
Mr Willink said the ration- nalisation would be the same process that more mature lending nations, such as Canada and Britain, had already experienced.
"The war is on. No-one is a winner at the moment. The only winner is the consumer," he said.
Mr Willink said the costcutting measures by banks and their eagerness to enter the securitisation business meant specialist lenders would come under pressure.
"I feel we are in this cycle of events where the home loan market is maturing in securitisation. While there is continued growth in securitisation, we are seeing it at the maturing end," he said.
"People like Aussie Home Loans are getting a greater share, but they are also adding to their expense."
Expanding their lending books has not been a problem for the banks, despite the rise of lending specialists.
According to Reserve Bank of Australia figures, in the past 3< years the value of lending commitments has grown 60 per cent, despite a few poor years in the residential market.
The banks' home lending for owner-occupied housing has grown from $50 billion in 1990 to $74 billion in 1992 and now stands at $124 billion.
The Commonwealth still leads the banks with a 20 per cent stake, but Westpac, National Australia Bank and the smaller Advance and State banks have eaten into its market share, which stood at 27 per cent in November 1992.
Westpac's performance has been more of a rebuilding exercise since a slump in the early '90s, when it lost 5 per cent of its market share. It now lays claim to a 17 per cent share, whereas in 1990 it held 21 per cent.
But it is the National Australia Bank which has been the strongest performer in recent years, adding 2 per cent to its share of the market.
According to the J. B. Were analysis, in the past six months the NAB has been able to lend an average of $259 million a month, while among the regionals the Bank of Melbourne, from its Victorian base, has been the strongest with an average of $55 million.
Unlike mortgage managers in NSW, Queensland and Western Australia, those in Victoria have yet to entrench themselves. The Bank of Melbourne's performance was backed by a waiving of application fees.
Banks such as the State Bank and Advance have added to their market share, but St George's eagerness to move into commercial lending could have been partly attributable to its slight fall in market share.
Market conditions are rather flat to support any expansion in home lending. However, recent interest rate competition has resulted in some optimism in the market.
According to State Government figures for April, the total sales value for the Sydney residential market was $1.36 billion, down 17 per cent on the previous month.
The number of properties sold fell 19 per cent to 5,149, but the average price was up $11,000 to $253,000.
While below 1994 levels, the volume of sales for the first four months of 1996 is above that for the same time last year.
OWNER-OCCUPIED HOUSING LOANS BY BANKS $billion Nov 92 Nov 93 Nov 94 Nov 95 April 96 Commonwealth 19.9 21.6 24.5 26.1 26.7 Westpac 12.2 14.7 17.5 19.7 20.8 NAB 10.9 13.7 16.3 19.3 20.5 ANZ 9.4 9.5 11.9 14.7 14.6 St. George 5.0 6.3 7.0 7.7 7.8 State Bank 3.3 4.4 6.0 6.2 6.2 Advance Bank 3.0 3.5 4.9 5.6 5.8 Australian Total 74.3 87.8 108.1 119.9 123.7
© 1996 Sydney Morning Herald