The non-bank lending sector experienced a significant drop in new business in September.
Figures released last week by the ABS indicate the number of owner occupied dwellings financed by the non-bank sector decreased by 10.1% in September 2007 compared with August 2007.
Wizard Home Loans founder and chairman Mark Bouris told Mortgage Business that the September figures – the lowest since 2001 – highlight the market’s state of flux.
“The ABS figures are further evidence that the market is quite volatile at the moment and all lenders are fighting for market share,” he said.
Bouris said Wizards’ market share grew in the first half of the year but had decreased slightly over the last quarter. He is confident of Wizard’s ability to compete against the banks however.
“Every lender is exposed to the increase in the cost of funds regardless of whether they are a bank or non bank,” he said.
“Wizard remains committed to maintaining competitive pricing and our standard variable rate remains around 35 basis points lower than the big four banks’ advertised comparable rates.”
The US sub-prime crisis, sustained media negativity around RAMS Home Loans and the looming federal election have all been cited as possible factors that have contributed to the downturn in new business for the non-bank sector.
And according to Australian First Mortgage national director Iain Forbes the next six months will be difficult.
AFM reported strong growth over the 2007 financial year with a return on equity of 40 per cent, as well as commission revenue growth of 17 per cent compared to 2006. Forbes is braced for a slowdown in the short-term however.
“It’s fair to say, looking at our figures, we are preparing for tougher times ahead. There will be a decline in business, though things will settle down.”
He believes that competitive pricing from the banks has taken its toll, eroding the non-banks traditional pricing advantage.
“There’s no longer a big price differentiation between the banks and the non-banks’ products. Sometimes, the banks' low doc products offer even lower interest rates than us.”
While the situation may look grim for the non-bank sector MFAA CEO Phil Naylor sees the current situation as a temporary setback.
“At the moment the non-banks have been forced to reduce their competitive advantage because of the liquidity crunch, which is being felt by the banks too,” said Naylor.
Naylor believes that while the banks may have been able to absorb costs so far, it is not a long-term option and increased costs will eventually be passed on to their customers – levelling the playing field once again.
“The competitive advantage is a temporary loss for the non-banks. The non-bank sector has always prided itself on innovation and competitiveness and this will not change,” he said.
“The non-bank sector is a dynamic industry, and like any other business sector, those who can adapt will weather the storm,” he said.
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