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While Australia, along with the rest of the world, still faces a challenging funding environment, the outlook for the non-bank sector looks to be improving.
The cost of funds is still horribly expensive for all lenders however. The ratings of the big banks undoubtedly gives them an edge in the wholesale markets, but not by a huge margin.
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But it appears that sufficient liquidity is reaching originators and non-bank lenders to enable them to compete.
The Australian Office of Financial Management (AOFM) announced in October that it would inject a further $8 billion into the second-tier lending sector with the aim of improving competition in a market now dominated by CBA and Westpac. While the amount set aside is but a drop in the ocean compared with the volumes of the overall market, it is nonetheless a major boost to the smaller players.
Last month RESIMAC sold $230 million of RMBS with the AOFM accounting for $56 million of the overall deal. While this was by no means a large issue, there was strong investor interest and the pricing of 140 basis points above BBSW was encouraging.
October also saw the completion of NAB’s acquisition of Challenger’s mortgage management division and the subsequent rebranding of the funding division to Advantedge. Along with the new brand comes much-needed balance sheet funding from NAB’s coffers – a welcome boost for many originators. But specialist lenders are also showing increased optimism. Late last month Liberty announced it would cut rather than raise rates. While there is a certain whiff of a PR campaign around this initiative it is clear that Liberty is back in the market and looking to ramp up its lending activities.
Pepper has also beefed up its lending over the last six months, and the signs are that it will look to increase its presence over the coming months.
Brokers are likely to continue to place the bulk of their business with the majors for the foreseeable future however, and there is no doubt that borrowers are still wary of any lender outside the big five.
But with bank policy continuing to tighten, there are growing numbers of creditworthy borrowers – the self-employed for example – who are being overlooked. Borrowers who the majors have turned away are likely to present good business for non-bank lenders.
And as interest rates continue their upward march next year, tighter bank policy is also likely to alienate other segments of the market. For the non-bank sector, 2010 may be the year that sees it claw back its market share and drive a much-needed return to confidence.
Alex Whitlock
Publisher, Mortgage Business
