The non-majors hit back

As the cost of funds has fallen, these banks have come out fighting with sharp products and pricing and an improved service offering and they are, in many cases, offering some of the best commission structures in the industry.

According to AFG’s latest Competition Index, the non-major banks’ overall market share has increased year-on-year and now accounts for 24.8 per cent of all loans.

Conversely, the four major lenders have seen a fall in market share over the past quarter from 79.4 per cent to 75.2 per cent.

However, Mark Hewitt , general manager of sales and operations at AFG, says the Australian banking climate has a long way to go before it meets international standards of competition.

“The latest figures are good news for competition and for borrowers, but we have to see things in context,” he says.

“The USA has one lender for every 42,000 people. In Canada, that ratio is 1 to 77,000; in the UK it’s 1 to 139,000; and in Australia, 1 to 183,000. We have a long way before we start to catch up with other developed economies in terms of consumer choice.”

The non-majors grow

The AFG report confirms Macquarie’s strong growth over the past few months, accounting for 5.5 per cent of all loans in June. Bankwest also continues to perform, writing 7.6 per cent of all loans. Meanwhile, ING DIRECT saw steady growth over the second quarter of this year, rising from 2.3 per cent to 3.7 per cent.

Ross Le Quesne, principal and mortgage broker at Aussie Home Loans in Parramatta, says this growth is attributable to the superior service now offered by many of the non-banks.

“In my opinion, the growth comes down to the service,” he tells The Adviser. “At the end of the day, mortgage brokers are only concerned with who can give our clients a great experience based on service.

“In the past, the major banks offered superior service, but in the last 12 months, the non-major banks have definitely lifted their game.

“Macquarie, for example, used to have blow outs and it would take a week to turn around a loan; now they are doing a record number of loans and still turning them around in 24 hours.

“That is what we demand as brokers – that type of service if a non-major bank can offer that, then brokers will use them. It comes down to service and our clients don’t see what goes on behind the scenes and if something goes wrong it is a negative reflection on us.”

Mr Le Quesne, however, admits he writes a majority of his loans with the Commonwealth Bank of Australia, although the non-majors continue to be a strong alternative.

“I do write the most with CBA as we get their Diamond service, but the amount [of times I have used] the non-major banks, especially Macquarie, in the last 12 months has grown significantly.”

Tim Brown of Vow Financial says he has seen a four per cent increase in the number of loans written by non-major banks over the past year.

“Our market share stats have only been going for two years, but I can tell that non-major banks represent 20 per cent of all loans and that is an increase of 4 per cent on the prior year,” he says.

Mindset is changing

According to Mr Le Quesne, a change in mindset – of both the broker and the consumer – lies behind the growth.

“Obviously, it is a lot easier to sell a loan by the major four. They are big, well-known brands and often our clients have been banking with CBA or Westpac [for example] all their life,” he explains.

“Plus, when the GFC hit and a lot of the non-major banks pulled out of the market, well, people were a bit reserved about them now that they’ve returned. However, more and more people are changing their mindset.

“At the end of the day, it is the job of a broker to explain all the options available to the client and detail the benefits – it becomes part of your skill base providing that security,” he says.

“Many of the non-major banks are huge international businesses like ING DIRECT or Macquarie ... I show that these are top companies within Australia and they are listed on the stock exchange. They are not small fry.”

Mr Le Quesne also believes the low exit fees available to customers are a reason why the market is seeing the growth of the non-major banks.

Driving that change

According to the AFG Competition Index, it is not first home buyers who are boosting the non-majors’ market share, even though they have traditionally been the non-majors’ largest borrower sector.

Instead, the non-majors have won an increasing volume of business from re-financers who, as a proportion of non-major loans written, have gone from 25.0 per cent in April this year to 29.6 per cent in June.

Meanwhile, investor activity went from 19.7 per cent to 22.1 per cent.

According to Mr Hewitt, these shifts are interesting because existing customers are often “rusted on” to their lenders and show the least inclination to move their business.

But according to Steven Heavey, general manager, intermediaries at Suncorp Bank, the trend is not surprising. More brokers are providing choice for their customers, he points out, and thus even long-term customers are moving outside the major four if it benefits them.

“Customers expect when they come to talk to a broker that they have the ability to discuss all options open to them, including outside the major four,” he says.

“If a broker is unable to do that then they run the risk of losing that customer.

“If you are only writing for the major four then you are restricting the service you offer to your clients.”

According to Mr Heavey, Suncorp Bank has seen a steady increase over the past 18 months.

“Our market share in the mortgage broking space has definitely increased over the last 18 months,” he says. “I believe it is down to our investment in back office and better turnaround times – we have new structures put in place.”