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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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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AFG Mortgage Index – Q1 19 – Home lending in a holding pattern

AFG Mortgage Index figures released today show the country’s lending in a holding pattern with first home buyers the only category of buyer to record an increase for the first quarter of the 2019 financial year.

The volume of mortgages processed by AFG declined 2% on the prior quarter. AFG brokers lodged 27,900 mortgages during Q1 19, totalling $14.2 billion, compared with 28,883 mortgages and $14.5 billion in the final quarter of the 2018 financial year.

AFG CEO David Bailey explained the results: “As the Financial Services Royal Commission continues to rattle the market Australian homebuyers are feeling the pinch as lenders tighten their borrowing criteria. Compared to the same quarter last year, lending volumes are down by just under 5% – a sure sign of a tightening market. The availability of credit has impacted investors most of all, with that category dropping by 1% to 27% of loans processed. Refinancers were steady at 23% and Upgraders were also static at 43%.

New South Wales and Victoria are both down on the prior quarter, 2.5% and 6% respectively. Queensland also recorded a drop across the quarter, down 2%.

Gains were recorded in SA – 2% up on last quarter, NT – up 22% and WA with an increase of 6% for the quarter.

Loan to Value Ratios (LVR) have increased in SA, NSW and WA.

The national average loan size has increased to a record $509,736, led by increases in average loan sizes in NSW, SA and Victoria.

“NSW has recorded an increase in average loan size of 3%, which we suspect is the result of a drop in apartment sales and lenders tightening criteria to investors – which are usually a lower average loan size. Both factors are driving up the average overall loan size in that state.

During the quarter many lenders moved to increase interest rates independent of the RBA, causing many borrowers to rethink their arrangements. “With the recent round of rate rises flowing through, many consumers have been speaking with their brokers to discuss the value of fixing all or part of their loans,” he said.

“Fixed rates have risen to 18.9% of loans by product category, whilst standard variable loans dropped to 64.3%. Basic variable products are also back in favour, increasing to 11.2% of all loans.

The major lenders clawed back some market share during the first quarter of the new financial year to now be sitting at 59.8%. This figure is still well below the high 70’s they had back in 2013, and much lower than they record outside of the third-party channel.

“The major lenders took some share from the non-majors after treading cautiously for the prior two quarters. The non-majors are still sitting at near historical highs with 40.2% market share after peaking at 40.8% last quarter.

“This is further evidence of the value brokers deliver to competition in the Australian lending market. Refinancers (55.5%) and Upgraders (60.5%) are favouring the competitive offers available from the non-major lenders.

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Mortgage Index – June 2018 – The new normal

Today’s quarterly AFG Mortgage Index figures (ASX:AFG) show it is ‘business as usual’ as a vibrant mortgage broking industry delivering choice and competition to the market continues to be embraced by Australian consumers.

Total mortgage lodgement numbers for the last quarter were up on the prior quarter to finish the 2018 financial year at 28,896. Lodgement volume for the quarter increased on the previous quarter to $14,589,632,848.

AFG Chief Executive Officer David Bailey said regulatory intervention in 2017 and tightened lending criteria appear to have established a structural change that may be the ‘new normal’ for the market.

“Investors are sitting steady at 28% of lodgements, first home buyers have been at 13% for the past four consecutive quarters,” said Mr Bailey. “Refinancers are at 22% and upgrader categories at 43% are also forming an established pattern.”

Mortgage holders are also taking advantage of low interest rates to pay down the principal with P&I loans sitting at 81%.

The popularity of fixed rates has fallen with a drop to 15.5% for the quarter recorded, down from 26.4% in the first quarter of FY18.

“A sign that regulators will welcome is the drop in Loan to Value Ratios across the states, with the national LVR now at 67.9%,” he said. “Another pleasing aspect of these figures is the fact that the gap between major and non-major lenders continues to shrink.

“Non-major growth across multiple categories – investors, refinancers and upgraders suggest consumer comfort with looking outside of the Big 4 for a lending proposition that meets their needs.

Interest rate, loan features, fees and lender criteria are all key features for a consumer evaluating their options. A mortgage broker is uniquely placed to be able to efficiently and fairly compare the alternatives available across major and non-major lenders. “As outlined in the ACCC Residential Mortgage Price Inquiry Interim Report 1, discounting by the major banks is lacking in transparency and the time and effort required for a consumer to obtain interest rate comparisons and negotiate for a discount is very difficult,” said Mr Bailey.

“The presence of the mortgage broking channel is one of the few drivers of competitive tension in the Australian lending market. A consumer dealing directly with a lender has limited negotiating power or knowledge of the interest rates and lending criteria offered by competitors. A mortgage broker with access to a panel of lenders drives competition between lenders to the benefit of all consumers, not just their own clients” he concluded.

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Competition vital for all mortgage holders. Mortgage Index – April 2018

The release today of the AFG Mortgage Index (ASX:AFG) highlights that the ongoing regulatory intervention into the sector is potentially stifling growth in mortgage applications. Further growth in non-major market share reinforces an increasing appetite for these lenders and highlights the vital role mortgage brokers play in enabling these lenders to compete.

AFG Chief Executive Officer David Bailey explained the results, “Whilst there is likely to be some small seasonal impact on numbers for the quarter, the Index highlights some marginal softening compared to the same period in 2017 with lodgements down just 1.8% on the prior period and just 0.8% on a rolling 12-month basis.

“Given the timing of public holidays and suggestions that Sydney house prices are coming off a little, the fact that there does not seem to be any growth is not surprising,” he said. The only market in the country which appears to be generating ongoing growth is Victoria.

“Western Australia, whilst initially showing signs of some green shoots earlier in the quarter appears to have softened. First home buyers are a known stimulant for an economy, so we hope that the recently announced increased GST allocation to WA will be used in part to stimulate this sector.

Interest Only home loans appear to have levelled off at around 20% over the past three quarters. “With some lenders indicating they again have an appetite for this type of lending, we would probably call this the bottom for this segment of the market.

AFG’s data also shows the non-majors have continued to pick up market share to now be sitting at more than 36%.

“AFG has 45 lenders on its panel,” said Mr Bailey. “This distribution model creates competitive tension in the lending market which leads to increased consumer choice and, most importantly, improved loan pricing and service across the entire market which benefits all Australian borrowers.

Industry regulator ASIC concluded in its recent examination of the sector1 that mortgage broking promotes competition by playing a valuable role in providing a distribution channel for lenders, particularly smaller lenders, and exerting downward pressure on home loan pricing,” said Mr Bailey. “The presence of the mortgage broking channel is one of the few drivers of competitive tension in the Australian lending market.


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Victorians paying more: Mortgage Index – December 2017

AFG (ASX: AFG) has today released the AFG Mortgage Index figures for the final quarter of 2017.

As the year drew to a close, Victoria stands out as the state to watch with an increase in average loan size over the past 12 months nearly double the size of the increase in New South Wales.

“There has been a lot of focus on Sydney house prices, and therefore mortgage sizes, but homebuyers in Victoria are seeing the biggest increases,” explained AFG CEO David Bailey. “In Victoria, the average mortgage size has jumped 3.2% in the final quarter of 2017 to now be sitting at $496,815.”

The increase in the last 12 months for Victoria was $20,385 compared to $10,662 for NSW. With the average NSW mortgage already substantially higher than in Victoria, the increase over the last 12 months was 4.3% for Victorians compared to 1.8% for those buyers in NSW.

“The average loan size in New South Wales is now $613,084. Queensland has increased by 3.4% to now be sitting at $416,921. South Australia is up 3.4% to $390,706. The Northern Territory is up 22% to $469,502, albeit from a low volume. Reflecting the challenges being encountered by the WA economy, the state’s average loan size is down 1.1% to $439,944.

Overall, the national average loan size is up 2.8% over the past 12 months.

“Fixed rate products have dropped back to 21.9% of the market after a high of 26.5% last quarter and First Home Buyers are sitting steady at 13% for the second consecutive quarter.

“What is noticeable is that the majors are continuing to lose ground to the non-majors, as borrowers increasingly look at alternatives to the major bank owned brands. The majors have 64.2% of the market compared to the non-majors sitting at 35.8%,” said Mr Bailey.

“Whilst tightened lending criteria continues to impact the market, particularly with respect to refinancers, our overall volumes compared to prior year remain strong. Refinancers now represent just 22% of the market. Investors have also been caught in the cross-hairs and have dropped to 28%.”

As they turn away from Investors, the majors are proving competitive for First Home Buyers (69.6%). Overall, Upgraders are proving attractive to lenders and now represent 44% of the market.

“Interest rate and lending policy changes have meant many clients are turning to their mortgage broker for help to understand what the changes may mean for them,” said Mr Bailey.

“Individual circumstances are assessed differently by lenders, so having the insight into which lender may be the right fit for your needs is vital to a consumer looking for finance. A mortgage broker is uniquely placed to have that information.


Regulator activity begins to bite: Mortgage Index – October 2017

AFG’s latest Mortgage Index results released today shows that major structural change in the Australian lending landscape is continuing.

“Today’s results paint a very different picture from this time last year,” said AFG CEO David Bailey. “Regulator-led tightening of investor lending has led to a further drop in investor volume and they are now sitting at an all time low of 29% of the market.

The shift in lender appetite from investors to upgraders is also evident in average loan size. “The national average home loan is now sitting at an all time high of $491,000,” said Mr Bailey. “This increase can be explained by the fact that people generally spend more for their primary place of residence than they do for an investment property.

The number of people looking to refinance has dropped to 25%, whilst those keen to upgrade their living situation is increasing with upgraders now representing 41% of the market. “This is also likely to be a reflection of the lack of lending options on the table for investors wanting to refinance, as lenders pull back from the investor market to meet regulator demands,” said Mr Bailey.

The major lenders’ share of the market is also down to a post-GFC low of 64.4% as borrowers continue to explore alternatives outside of the major bank owned brands.

Looking at loan type, fixed rates are now at 26.3% of all loans which confirms many Australians are anticipating that the next interest rate move will be up,” said Mr Bailey.

First home buyers are enjoying their third consecutive quarter in double digits since the beginning of 2014. “National market share for first home buyers has lifted to 13% across the last quarter, helped in part by new stamp duty concessions kicking in on July 1 for this segment of the market in Victoria and New South Wales.”

Victoria continues to set the pace with lodgement volumes in that state up 27% on the first quarter of last year whilst every other state has lost momentum to varying degrees. The strength of the Victorian home market is also evidenced in the average loan size for that state, which is 5% higher than it was at the same time last year.

“Overall, volumes are up on the previous two quarters, however, compared to the same time last year they are flat. This translates into the view that regulator-led changes are being felt everywhere except Victoria,” concluded Mr Bailey.


AFG Mortgage Index – June Quarter 2017

Non-majors and fixed rates in favour

Australian Finance Group (ASX: AFG) has today released the AFG Mortgage Index for the final quarter of the 2016/17 financial year.

AFG CEO David Bailey welcomed the news that the non-major share of the market is now at 35%. “Significant structural change to the lending market brought about by tighter lending rules has seen increased flows of business to the non-major lenders.”

“As the majors re-price their mortgages and change lending policies to meet regulatory caps, consumers are turning to mortgage brokers to get a full picture of the choices on offer in such a competitive market,” he said.

“The non-major lenders are helping fill the void left by some of the majors and consumers are benefiting from the fact that a mortgage broker can offer products from those lenders without a branch network.”

A series of rate rises and policy changes?has?also had an impact on the investment market. “In what will no doubt be welcome news for the regulator, investment lending has dropped to 31% of our total lending for the quarter as lenders continue to tighten their criteria,” said Mr Bailey.

Refinancing figures are also down from 35% to 29% as refinance options for borrowers with interest only or higher LVR investment loans decrease and others choose to stay put until the market settles. Lender policy restrictions have also seen the average loan size fall in every state apart from Queensland.

“The part of the market that has been virtually untouched by regulators and lenders is the principle and interest owner category. As a result, those opting to upgrade their homes have increased from 34% to 39% in response to some attractive lending offers,” he concluded.

In a sign that homeowners are picking the bottom of the market for interest rates, the number choosing to fix their rate has jumped significantly to finish the quarter at 23.7%.

Download full report: AFG – Mortgage Index – June 2017