A surge in housing credit growth in the first quarter of this year, together with rising Loan to Valuation Ratios (LVRs) on variable rate loans, has resulted in more consumers being vulnerable to global interest rate rises than ever before, a new report from JPMorgan and Fujitsu has found.
"A surge in housing credit growth in the first quarter of 2006, set against the backdrop of further declines in residential construction activity, reflects a stabilisation in national house prices and an increased willingness by consumers to borrow on higher LVRs," said Brian Johnson, Banking Analyst, JPMorgan Australia.
"Increasingly, Australian households are heavily leveraged into residential property and with approximately 85 per cent of home loan outstandings at variable rates, the risk of rising global interest rates on this increased level of consumer indebtedness is being borne directly by households, not the banking sector," Mr Johnson said.
The report identified a number of important consumer trends that highlight the impact of competition and the growing sophistication of the household lending sector. A key finding was that customers, having previously used mortgage brokers to arbitrage mortgage prices between banks, are increasingly using multiple mortgage brokers to verify offerings.
"More than 85 per cent of customers now use more than one broker when searching for a mortgage, with over 20 per cent using three or more brokers. These statistics suggest that use of the broker channel is maturing as customers become more comfortable dealing directly with brokers," said Martin North, Managing Consulting Director, Fujitsu Consulting.
"The internet is increasingly being used by mortgage borrowers as a price discovery mechanism, while our research also found that 29 per cent of customers found broker web sites easier to use, compared to 21 per cent for bank web sites. These results suggest that the internet is being used increasingly in the research stage of buying a home loan," Mr North said.
Other consumer trends identified in the report were:
- Owner-occupied refinancing is making up a larger share of total loans (significantly, mortgage brokers are capturing a larger share of refinancing than other sectors)
- Mortgage market participants have responded to slowing volume growth by offering lower rates and `attractor' packages
- The proportion of broker-originated home loans continued to rise to around 35 per cent
- The non-bank mortgage intermediary industry is starting to consolidate.
Australian Prudential Regulation Authority (APRA) statistics to the end of February 2006 indicate that housing loan market shares for the major banks have declined slightly, regional banks have stabilised, and non-banks/foreign banks have picked up modest incremental housing share.
"Each of the major banks has lost market share in their branch networks, with the notable exception of ANZ. This market share loss continues despite significant reinvestment in branch networks, particularly by CBA and ANZ, after long periods of branch closures and disinvestment," said Mr Johnson.
"Generally, sales through the branch network are underperforming relative to sales through other channels, in particular third-party mortgage brokers, which now account for an estimated 45 per cent of new housing lending volumes," he said.
