Major banks' mortgage dominance loosening as smaller lenders get a look-in: AFG

The stranglehold the major banks have had on mortgage lending since the onset of the GFC appears to be loosening, with AFG reporting that second-tier lenders accounted for nearly a quarter of all loans arranged by its mortgage brokers in December.

AFG’s December Mortgage Index shows that non-major bank share of mortgages jumped from an average share of 19.1% over the past 12 months to 24.39% in the last month of 2011.

This is the first time since the third quarter of 2007 – when the sub-prime mortgage crisis began brewing – that major lenders have not written close to 80% of more of AFG’s mortgage lending business.

December 2011 was also the biggest increase in the second-tier’s share of the mortgage market over the past 12 months and significant since AFG brokers write around one in ten mortgages in Australia.

According to November banking statistics from APRA, ING remains the biggest non-major bank lender (excluding brands owned by the major banks) with a loan book of just over $37 billion, followed by Suncorp ($29 billion), Bendigo and Adelaide Bank ($21.6 billion) and Bank of Queensland ($21.3 billion).

Non-major lenders were particurlarly popular with those refinancing, with their share of this sector rising from 21.0% to 28.8% during the month – an increase of 37%.

 Source: AFG

In the past, both the refinancing and investment home loan markets have been tightly held by the majors, with first-home buyers showing the greatest willingness to try non-majors. But the December figures reveal a significant change, with non-major market share rising among refinancers to around the same level as among first-home buyers, 28%.

AFG’s inaugural first Competition Index revealed that non-major lenders are competing strongly in niche markets, with Suncorp writing an impressive 14.9% of all first-home buyer loans in October, nearly double that of NAB (7.7%) and higher than ANZ (12.5%).

Suncorp’s share of the first-home buyer market was almost triple its overall market share of 5.1% captured in October, up from just 3.1% in November 2010.

AFG general manager of sales and operations Mark Hewitt says the company is being careful not to read too much into any one month’s set of figures, but says “there’s no question that the market is becoming increasingly competitive and that non-majors did particularly well last month”. 

“This trend will help keep rates competitive as we move into 2012. If the expected rate reductions come through over the next quarter, we could see a very different lending environment, supporting the recovery of property markets across Australia,” he says. 

AFG brokers also wrote an increasing number of fixed-rate loans in December, with the proportion of fixed rate mortgages rising from 17.2% to 19.2% – but below the 24% fixed-rate market share achieved Mortgage Choice franchisees. 

In line with seasonal falls, mortgage sales volumes declined month on month by 26% in December, which together with January are quieter months for the industry. 

But sales volumes were up by 5.4% nationally compared with December 2010, with the strongest growth (comparing December 2011 with December 2010) occurring in South Australia (44.8%), followed NSW (up 15.6%) and Queensland (7.7%).  Mortgage lending in Western Australia contracted by 3.9% and in Victoria by 8.9%.