Mark Bouris and John Symond slam Treasurer Wayne Swan for allowing major banks to dominate mortgage market

Federal Treasurer Wayne Swan has come under attack from non-bank lending pioneers John Symond and Mark Bouris for hindering competition in mortgage lending and allowing the major banks to increase their dominance of the home lending market.

Symond and Bouris, as respective founders of non-bank lenders Aussie Home Loans and Wizard Home Loans, were at the forefront of the rise of the non-bank lending sector in the late 1990s up until the start of the GFC.

Prior to the GFC, non-bank lenders accounted for around 15% of all mortgage, but Bouris and Symond have watched the sector founder since, as the major banks have taken a stranglehold on the market.

Non-bank lenders accounted for just 3% of all mortgages written in February, according to ABS data.

The graph below shows how the market share of the major banks has jumped from around 80% of the market to over 90% since the onset of the GFC.

Source: ABS

Symond says the Treasurer’s decision to ban exit fees on new mortgages from July 1 last year had made it tougher for non-bank lenders to compete.

Non-banks charge low upfront fees as a way of differentiating themselves from the major banks and prior to the ban could recoup the fees if the borrower exited a loan early.

Symond says the exit fee made a good headline for Swan but in reality was “bad news for consumers, because it made it even harder for the non-bank sector to compete”.

“At the moment, there is no competition,” Symond told the Australian Financial Review.

“Wayne Swan, regardless of what he has said, he hasn’t helped competition with the small lenders. In fact he has made it tougher.”

Symond does not expect the Treasurer to reverse the government policy on exit fees but says the government could improve competition if the Australian Office of Financial Management (AOFM) were to buy more residential mortgage-backed securities (RMBS) from non-banks.

Non-bank lending virtually collapsed as a result of securitisation markets closing following the GFC.

In September 2008, the AOFM instigated a program of buying RMBS from lenders with the aim of helping support competition in lending.

However, while some non-banks were recipients of the scheme, many of the investment mandates were awarded to the major banks to assist their wholesale lending operations.

Mark Bouris, chairman of Yellow Brick Road and former adversary of Symond in the late 1990s heyday of non-bank lending when running Wizard Home Loans, places the blame squarely on the shoulders of the Treasurer and not on the shoulders of RBA governor Glenn Stevens.

“Don’t blame the Reserve Bank: it only has interest rates to use against a dynamic set of forces that haven’t yet settled into their new shape,” says Bouris.

Bouris does not advocate more regulation of lending markets but says there is a case for “using incentives to alter the structural problems”.

“A first step could be to foster competition by encouraging our regional banks and foreign banks to compete in mortgage lending,” Bouris says.

“There are tax incentives that could be used, and there are models where the Australian government could guarantee the small and non-banks, and not the big banks.

“It doesn’t matter how we get there, but we do need more competition in lending. Competition will bring down the margins on variable rate mortgages and lure the big banks towards business lending again, where they can charge higher margins.

“The market is actually poised to correct itself, but there has to be an incentive,” he says.

Despite their miniscule share of the market, Swan claimed in his February economic update that there was more competition in the banking sector due to the government’s decision to ban exit fees on new mortgages from July 1 last year and other reforms such as the introduction of one-page fact sheets to make it easier to compare mortgage products.

“Reforms like these have clearly turned up the heat on competition in the banking sector,” said Swan as part of the note, highlighting that smaller banks had increased their share of mortgage lending by $9.7 billion over the 12 months since the reforms were implemented.