Mortgage industry in position to grow, non-banks to make a comeback: Deloitte
December 21, 2009
The annual Deloitte Australian Mortgage Report: 2010 positioning for opportunity has revealed strong growth prospects for the mortgage sector in 2010.
The researchers noted that the industry had systemically changed in Australia, but saw numerous opportunities in the year ahead. They cautioned, however, that this year’s growth rate - below 10% for the first time in a decade - may become more common.
“This means that the days of outstanding system lending growth of between 10-15% p.a. are over. We anticipate current lending growth levels of around 7.5% are most likely to remain into the near future,” said James Hickey, a banking partner with Deloitte Actuaries and Consultants.
Informed by a roundtable of Australian mortgage lenders and distributors, the Deloitte Australian Mortgage Report considers the challenges and opportunities for the industry in 2010 across competition, margins and credit performance, product design and distribution.
“The overarching sentiment is one of renewed hope,” Hickey advised. “In 2010 lenders will seek to position for the opportunities ahead. Where 2009 was the year of the major banks, 2010 will provide opportunity for the re-emergence of other lenders in the marketplace.”
“The Big Four roundtable participants said they would welcome more competition and the smaller lenders said they intend to tackle them. So the game is on,” according to Graham Mott, Audit Partner and Deloitte Australian Securitisation lead.
To meet the challenges ahead the roundtable and Deloitte’s analysis show that the evolution of the mortgage market is likely to take place on a number of fronts:
* Differentiation around brand, strategy, pricing and operating models
* Competition between the Big 4, from regional and non-bank lenders, and other ‘left field’ industry players
* Distribution channels indicating continued M&A activity in 2010 of third party broker groups, and natural attrition driven by regulation
* Innovation around product design, customer service, delivery channels and operating efficiency, where leveraging technology and mining and understanding data will be key.
“The consensus of the industry players was that a return of the residential mortgage backed securities (RMBS) investors was both necessary and anticipated,” Mott noted. “We are already seeing solid evidence that the RMBS market is returning and at this rate it will reach ‘break even’ levels in 2010 - triggering the environment for more competition.”
Mr Mott added that all industry participants expressed concern as to the possible ‘double whammy’ of higher unemployment and rising interest rates in 2010 and its effect on arrears. But, despite the challenging credit conditions, their current losses were remaining stable - helped by the unexpected decline in unemployment.
Housing market
The researchers noted that supply constraints would help fuel the property market in the year ahead, negating the impact of stimulus reduction.
“Housing demand currently exceeds supply, and although fuelled to large extent by the boost to the first home buyers grant, lenders and distributors anticipate that will be replaced by growth from investor lending in 2010 and so continuing a settlement growth rate of 5-10%,” Hickey explained.
The report suggested that non-bank lenders - hit hard by the global financial crisis - would begin to make inroads once again next year.
“Non bank lenders are optimistic and the market is anticipating their return in 2010,” Hickey said. “While the major lenders positioned themselves well during the GFC in terms of strategic acquisitions and capabilities, they will now increasingly compete on price, strategy and service. This, together with a continued demand for distribution by third party brokers, means the outlook for 2010 will be one of competition, greater choice and differentiation.”
