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Australia’s non-major lenders are benefiting from the changing nature of the Australian mortgage market. With regulatory pressures forcing banks to tweak the pricing and policy of their home loans, borrowers are increasingly turning to brokers for guidance and access to a full panel of lenders
The non-majors stand to see an increase in market share as ongoing changes continue to push borrowers towards the third-party channel.
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Gerald Foley, managing director of nMB, says more and more brokers are being approached by new clients and referrers.
“These are people who have previously dealt directly with their bank and who are now being advised by their lending manager or private banker they are unable to assist them as they have in the past,” he says.
“In a way, the recent tightening by lenders of their investment lending policies will result in a wave of borrowers dealing with brokers for the first time.”
Investors who have previously not felt the need to deal with a broker are now realising the benefits of having access to a wider range of lenders and products in changing market conditions, Mr Foley said.
“Once they start to use a broker, there is no reason for these new clients to move away when the investor market settles down, as it no doubt will,” he said.
As brokers gain new customers, Australia’s smaller lenders will see a greater flow of this business as the big four turn away from certain niche segments such as investor and interest-only lending.
AFG’s general manager of sales and operations, Mark Hewitt, says the non-majors have maintained their overall share of broker-originated loans over the past 12 months. However, a two-tiered mortgage market is creating niches for the non-majors to win more business.
“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,” Mr Hewitt says.
Breaking it down
The AFG Mortgage Index for the September quarter noted that the pricing and policy changes made by the big four saw the non-majors regain two per cent market share in the investor space, a further indication that borrowers are seeking a broker’s help.
Other findings from the index are that the non-majors currently have a 26 per cent share of all AFG broker-originated home loans, and an impressive 45.3 per cent share of all broker-originated fixed-rate home loans.
“Offering attractive fixed rates can be a way of locking in and growing market share, and I think we have started to see non-majors focus on this area more over the last couple of years,” Mr Hewitt says.
Macquarie Bank, ING Direct, BOQ and Suncorp have consistently been the best performing non-majors over the last 12 months.
Nimble
BOQ saw a significant increase in its broker market share from 2.4 per cent in July to 3.6 per cent in August, according to the AFG Competition Index.
Matt Baxby, group executive of retail banking at BOQ, acknowledged that we are at an incredibly interesting time in banking at present, with competition, regulation and technology all converging to “irrevocably change the industry landscape”.
“One of the advantages we have as a challenger bank is the ability to move quickly to take advantage of these opportunities and respond to the challenges the industry faces,” Mr Baxby said.
“While we actively monitor macro-prudential developments, we are comfortable with our current risk settings and have capacity to grow.”
Mr Hewitt acknowledged that the non-majors have the ability to be a bit more nimble and service oriented, which can appeal to a lot of brokers.
“I think they need to focus on their strengths, which tend to be particular niches or local geographical advantages,” he says.
Future growth
Over the coming months, the non-majors are well positioned to take a greater share of broker originated home loans. As the majors announce new rates in response to tougher capital requirements, smaller lenders are starting to win over brokers with more competitive offers.
For example, on the same day that Westpac shocked the market by announcing a 20-basis-point rate hike, non-major Suncorp went the other way by revealing a rate cut. In addition, the non-major launched a cashback offer and increased upfront commissions for its broker partners.
Less than a week later, on 19 October, Auswide Bank cut its variable rates for owner-occupiers.
Auswide’s managing director, Martin Barrett, said the timing of the non-major bank’s rate announcement was no accident. The non-major is clearly using the major bank’s decision to its advantage as it looks to win a bigger slice of the mortgage market.
“Westpac Bank’s increase was totally unexpected by their customers,” Mr Barret said.
“I’d expect that they are pretty upset right now, especially given the size of Westpac’s annual profit.
“If other banks follow suit, I think there will be a whole lot more disgruntled borrowers especially given the big four own about 80 per cent of home loans in Australia.
“Now is the time for customers of the big four banks to stop being taken for granted and move to a bank that appreciates its customers,” he added.
With this level of competition, it has never been a better time to be a broker.
