Non-major lenders: an aggregated analysis

Tim Brown, CEO, Vow Financial : Non-major lenders’ share of the mortgage market is quickly increasing for several reasons. The recent changes in credit policy have forced some of the majors to pull back lending, in particular for investment loans. Also, there are certain niches that non-majors play well in, such as lending to self-employed and overseas borrowers.

Mark Hewitt, general manager of sales and operations, AFG: It is very similar to this time last year. Over the last quarter, we have seen the majors win back share in the owner-occupier space. However, the non-majors are filling some investment lending niches that the majors have moved away from.

Matthew Ivers, partner, Vision Aggregation: The past two financial years have seen us sit between 33 per cent and 36 per cent going to the non-majors, so there has been an increase from the non-majors. I believe that brokers are keen to provide a diverse range of lending solutions to clients, and the service and pricing from the non-majors continues to get better and better.

Mark Haron, director, Connective: Over the past three to six months, we’ve started to see a trend towards the non-major banks – even some of the smaller, traditional non-major banks. The thing is that a lot of the smaller banks’ funding comes from the major banks, so it’ll be interesting to see when it gets to a point where the majors decide to go a little bit harder on the funding of the smaller banks and the non-bank sector as well.

The non-major banks are being a lot more aggressive with their pricing. They’ve got this opportunity to get some market share and they’re going for it, which is fantastic – I think it’s great for brokers and consumers, because it’s created a more competitive market.

Vaughan Fowler, head of distribution, Aussie Home Loans: Over the last 12 months, Aussie has seen some growth in share going to lenders outside of the big four, but not a game-changing amount. A feature of the past 12 months has been the significantly increased level of competition in terms of pricing and special promotions, as lenders fight to take advantage of the strong market conditions and industry growth, and from our perspective, the non-major lenders have competed very aggressively in terms of price and promotion.

Tanya Sale, CEO, Outsource Financial: With Outsource Financial, they have definitely increased due to the fact that the non-majors have decided to get more aggressive in their products and pricing.

Michael Karpathakis, NSW director, Loan Market: The share of mortgages for non-majors increased in September by about five per cent compared to the same time last year. The thing I find most interesting when we look at the breakdown is that CBA and ANZ have actually increased year-on-year, despite changes in market conditions and the fact that the overall share of the major banks decreased.

I think the increase in non-majors as well, as with CBA and ANZ, shows many banks – no matter what their size – have shifted focus to their brand presence and value proposition among both third-party and consumer channels.

Which non-major lender is getting the most business from your brokers and why?

Mark Haron: Macquarie Bank has been the most dominant, without a doubt. Over the last three years, they’ve come back pretty hard into the broker space – they’ve put a lot of BDMs on the ground, and they are challenging for business with a fairly competitive product.

Matthew Ivers: St. George, but the top three among the rest are ING, Macquarie and Suncorp. With ING and Suncorp, it has been razor sharp pricing for owner-occupier loans, and for Macquarie it has beenflexible credit.

Vaughan Fowler: We’re actually seeing our own branded Aussie product currently leading the table, followed by Suncorp.

Tim Brown: In our network, Macquarie and Suncorp get a substantial amount of business from our brokers. However since the APRA changes, we are also seeing a shift to our brokers working more often with some of the mortgage managers such as Resi, Pepper and Bluestone.

Michael Karpathakis: ING was the highest ranked non-major lender for September 2015 at 4.46 per cent. The rankings of non-major lenders vary from month to month; however, lenders with a strong broker value proposition who are proactive in building deeper relationships with our network are usually the ones that have greater loan share.

How competitive are the mutuals with some of the bigger non-major players?

Mark Hewitt: We are seeing the former mutual sector play a valuable role in competition, particularly in niche and local markets. We have had a couple join our panel recently and have a couple more in the pipeline.

Tim Brown: At different times throughout the year, they can be very competitive. However they do have limitations. If they launch a really strong headline rate, they generally get flooded for two to three months and then have to close it.

Matthew Ivers: They are highly competitive in their pricing, but their lending policies can be less flexible and this can restrict the more sophisticated borrower and investor often attracted to brokers. The bigger non-majors will usually take more of a case-by-case approach.

Mark Haron: The mutuals are definitely up there. Teachers Mutual has come out very competitively with its pricing and proposition, and has done well with Connective brokers, and we’re looking to expand
our mutual panel as well. Where the market dictates that there’s a strong operator, we want to make sure that Connective has access to those funders.

Tanya Sale: For them to take on the non-majors, they have to be superior in their turnaround times and customer service. But the big component is that I believe they should choose a niche market or product – concentrate on that – as only then would they be a threat to the bigger non-majors.

Are policy and pricing changes increasingly forcing brokers to look beyond the major banks?

Michael Karpathakis: Yes. We are seeing a number of banks readjust both pricing and policy levers on investment loans based on how they’re positioned under the APRA cap. With this, we are seeing an increased presence from non-major lenders who are not directly impacted by APRA. These lenders are taking a stronger stance in investment lending while the major banks continue to track their position within the investor cap.

Non-majors who are not governed by APRA are not as constrained. Although it’s too soon to measure direct impacts, we don’t think it’s extensive.

Vaughan Fowler: There has been a significant level of policy and pricing change across the industry, particularly around serviceability assessment and investment lending. This has generally impacted both majors and non-majors to a roughly equal extent, with the exception of those non-major lenders who have withdrawn from investment lending altogether. We have noticed in recent months a shift towards specialist lenders like Liberty and Pepper who have started to increase their share of lodgements, I believe, in response to this general tightening.

Mark Hewitt: Yes. This is especially the case with investment and interest-only lending. The beauty of being a broker and having access to a large number of lenders is that there is generally a solution for most situations.

Mark Haron: When the banks that brokers have traditionally used change everything, literally overnight, it’s making brokers say: ‘I need to have a look around here, and I’m not just going to go to the next major bank. Who else is doing this business?’ We’re certainly seeing the likes of Pepper and La Trobe pick up their market share.

Matthew Ivers: Everyone has to now look wider to meet their clients’ needs, with many lenders imposing tougher restrictions and increased pricing to stay within the APRA growth guidelines.

Tim Brown: For brokers to service the needs of their clients and provide them the most competitive prices available, they are increasingly having to look further than the majors. In a regulatory market that is changing so quickly, it provides finance brokers an excellent opportunity to provide guidance to their clients who might be confused as they navigate through it to reach their property goals.

What do the non-major lenders need to improve on to continue their growth in the third-party channel?

Tim Brown: The three most important qualities that non-majors need to improve on are consistency of product, providing excellent service and reliable delivery.

Matthew Ivers: Taking a common sense approach to credit and be willing to use legitimate mitigating factors. Work with the broker – pick up the phone, as they know the client. Good credit is knowing your customer, so speak to the people who do. It is good business.

Mark Haron: They’ve got to be consistent around their pricing – they can’t come to the market with specials, have them there for a few months and then say ‘We’ve filled up the bucket now – let’s pull back on pricing’. Their strategy should be to grow their market share in a sustainable way – that will build a stronger relationship with brokers.

Vaughan Fowler: Maintaining consistency of turnaround times, particularly during special promotions and campaigns. One issue with the non-majors has been their ability to maintain processing SLAs [service-level agreements] during periods of increased volumes, whereas the majors are generally more consistent with this.

Mark Hewitt: I think they need to focus on their strengths, which tend to be particular niches or local geographic advantages. They also have the ability to be a bit more nimble and service-oriented sometimes, which can appeal to a lot of brokers.

Tanya Sale: I believe the non-majors need to keep on their crusade with the government to ensure a level playing field is implemented in our market. If the rules were changed so they could compete on an even keel with the majors, I honestly believe the floodgates would open. Other than that, they must stick to what will give them that competitive advantage and that is customer service – the customer being the mortgage broker.

Michael Karpathakis:  Communication is key in ensuring strong and consistent broker relationships. Building trust and strength in their brand presence, not only in broker channels but also with consumers, is also critical because the more a lender is trusted, the stronger their reputation is in the marketplace.

Above all, I believe continually looking to improve their customer value proposition is what will put non-majors in the strongest position.