The withdrawal of RAMS from the third-party channel in February highlights one of the major challenges the broking industry faces in 2010: the availability of funding.
A lack of liquidity has hamstrung every lender since the financial crisis first hit in late 2007. And while economic conditions have improved dramatically – particularly in Australia – easy and ready access to competitively-priced funding is still a long way off.
It will be an unfortunate situation if funding challenges act as a dampener on what is likely to be a buoyant year for brokers.
There are positive signs the housing market will continue to thrive in the year ahead. But the ongoing shortage of funding available to the major lenders – which have accounted for the lion’s share of volumes for the past two years – may put a brake on activity.
Lenders such as Westpac are already taking steps to contain lending activity to preserve funding for the year ahead. The bank has reduced its maximum LVR from 97 per cent – including LMI – to 87 per cent for new customers as it looks to slow borrower demand. Although Westpac saw its share of the mortgage market soar over the later part of 2009, this pace was clearly unsustainable.
The banks now account for 89 per cent of the residential lending market in Australia thanks to an aggressive grab for market share during the financial crisis, according to ABS data from November last year.
But the pendulum may now be swinging back towards the second tier and non-bank sectors, which are in far better shape than a year ago.
While the non-bank sector still only accounts for 11 per cent of the market, this is a small but important improvement on the 10 per cent it held in October 2009. And there is plenty of fight left in the second tier sector.
ING DIRECT executive director Lisa Claes has recently outlined the lender’s aggressive growth strategy, with an eye to 25 per cent growth in 2010.
NAB’s acquisition of Challenger Mortgage Management has also provided a significant boost to the mortgage management and originator sector, taking significant pressure off funders such as Resimac, Firstmac and ING DIRECT.
Some mortgage managers have chosen to undercut the big banks on price, and while this may come at the expense of their margins, it does indicate that competition may again be starting to spark into life. For other lenders that don’t choose to compete on price, there are opportunities to tackle the majors on policy and features.
With the maximum LVRs of the majors coming under pressure, the opportunity has again opened up for smaller players to capture market share through edging into the gaps that are quickly emerging.
There is little doubt that the major banks will continue to account for the bulk of lending activity over the coming year – a responsibility which has been pivotal in sustaining our housing market and ultimately our economy in the darkest days of the financial crisis.
But while the funding outlook for 2010 remains challenging, it is clear that where one lender retreats, another will see opportunity – a scenario which right now favours the non-bank sector.
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