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A bigger “Big 4” market share and faster loan turnaround times were key highlights in AFG’s latest Mortgage Index (Q3 2023).
A higher cash-rate economic slowdown has been “good news” for lender turnaround times, as outlined in the October-released Australian Finance Group (AFG) Mortgage Index.
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The average number of days until formal loan approval is at its lowest level since AFG reporting began in 2018, it pointed out — now averaging 17.2 days.
“COVID and the resultant disruption coincided with a peak in home loan volumes, which put huge pressure on turnaround times,” explained Australian Finance Group chief executive David Bailey.
“There was also some speculation at this time that lenders were prioritising their proprietary channels ahead of brokers.
“Parliamentary focus on this issue — along with greater investment in staff and technology by lenders together with an easing in volumes — has led to the improvement. We hope to see this improvement maintained.”
Other notable highlights included the major banks and their associated brands with increased market share for all mortgages over two years reaching 60.77 per cent — from a recent low of 50.81 per cent.
In context, this is following on from the acquisition of Citibank’s consumer business in Australia by NAB, with Citibank recategorised to become a part of the NAB stable in AFG’s “Majors and their Associated Brands” tables from Q1 2023.
Conversely, non-major lender market share for all mortgages over the same period has dropped to 39.23 per cent, following a recent high of 49.18 per cent.
On a state-by-state basis, the top lender overall was the Commonwealth Bank of Australia (CBA), bar Victoria where the Australia and New Zealand Banking Group (ANZ) reigned.
Interestingly, in Queensland the non-bank lender dominance has dropped from Q4 2022’s 52.44 per cent to 47.86 per cent in Q1 2023.
Recent rate rises are having ‘desired effect’
AFG Index first quarter 2023 data primarily underlined that the “interest rate levers” are being “pulled by the Reserve Bank of Australia (RBA)”, which is “having the desired effect” — with volumes down 4 per cent on the prior period.
AFG CEO Mr Bailey said: “Australian mortgage customers have been hit between the eyes over the past six months with interest rate hikes being super-sized to slow the level of activity in the market.
“With interest rate rises still being absorbed we would argue there is a need for a ‘wait and see’ approach by the RBA as the impact starts to flow through.”
Specifically for the Perth-based and ASX-listed AFG, the company recorded $21.5 billion in home loan lodgements for the first quarter of the new financial year.
Western Australia recorded the biggest drop of 5.62 per cent, followed by NSW at 5.13 per cent, it highlighted.
Loan sizes are also down in line with rising rates and affordability, it explained.
Nationally the average loan size is lower by $15,000 at $596,000 — the lowest since the final quarter of 2021, it outlined.
Rate rises are reaching a tipping point
Significantly, NSW was down $33,000 while South Australia defied the trend and increased by $2,000.
Loan-to-value ratios (LVR) increased slightly to 65.6 per cent.
After benefiting from the government’s term funding facility through the pandemic, the major lenders are holding back on passing on full rate rises to deposit holders and using their balance sheet strength to track the RBA increases, according to AFG.
Non-major lenders, who primarily rely on RMBS and international money markets for funding, are feeling the pinch as they are compelled to increase rates above the official cash rate, it proffered.
“The Big four and their associated brands (now including Citibank), have lifted their market share by 4.38 per cent to 60.77 per cent,” Mr Bailey said.
“ANZ saw a significant uplift from 10.90 per cent to 14.82 per cent for the quarter, and CBA and their affiliate Bankwest also increased market share from a combined 18.12 per cent to 20.33 per cent.
“The importance of a competitive lending market cannot be underestimated in driving affordability.
“The non-major lenders have slipped back to their lowest level since the final quarter of 2020 at 39.23 per cent of the market.
“The broker channel, now responsible for 68 per cent of the market, is vital to ensure the non-majors can continue to compete.
“The Westpac Group — including brands Bank of Melbourne, Bank SA and St George — was down 3.47 per cent to 14.89 per cent, while the NAB group — including subsidiaries ubank and Citibank from this quarter — lifted from 8.95 per cent to 10.72 per cent.
“Australia’s brief love affair with fixed rate mortgages during the height of the pandemic has well and truly ended, with customers opting for a fixed rate product plummeting to 3.6 per cent — the lowest level since we commenced reporting.
“In a hunt for savings, customers are opting for no frills Basic Variable home loans, with these products at their highest level in more than a decade at 24.4 per cent.”
[Related: Fixed rate volume lowest in a decade: AFG]
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