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RBA highlights competition in mortgage market

RBA highlights competition in mortgage market

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Reporter 2 minute read

Strong growth in the issuance of residential mortgages has been driven by non-major and non-bank lenders, according to the Reserve Bank.

In his address at the Debt Capital Markets Summit on Wednesday (14 March), assistant governor (financial markets) of the Reserve Bank of Australia (RBA) Christopher Kent noted that non-major lenders (or other banks) and non-bank lenders offset inactivity from major banks in the residential mortgage market.

Mr Kent highlighted “particularly strong” issuance of residential mortgage-backed securities (RMBS) in 2017, despite noting that major banks issued only 13 per cent of RMBS volumes in 2017, the lowest since 2010.

The assistant governor attributed major bank inactivity to the unattractive nature of pricing in the RMBS market and the tightening of investor and interest-only lending imposed by the Australian Prudential Regulation Authority (APRA).

Mr Kent pointed to growth in activity from smaller players, and he referred to the $16 billion in mortgages issued by non-major banks in 2017, the highest volume since 2007.

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Moreover, the RBA representative noted the “remarkable” growth in the number of non-major lenders that issued RMBS, citing an overall 17 non-major issuers of mortgages in 2017.

Further, Mr Kent drew on data from the Herfindfahl-Hirschman Index, which outlined the level of concentration in the mortgage market. The index demonstrated a significant rise in the number of issuers in the market since 2014, when non-bank players issued less than half of all RMBS.

RBA on NPP

Meanwhile, in her address at the Seamless Payments 2018 on Tuesday (13 March), assistant governor (financial system) Michele Bullock stressed the significance of the New Payments Platform (NPP), which will enable customers to send and receive funds in real time.

Ms Bullock outlined the benefits of the NPP and sought to alleviate concerns over fraud risks associated with the real-time payment platform. She claimed that Australia’s NPP architecture was unique, noting that financial and non-financial institutions would draw from the experiences of foreign markets using a similar platform.

The assistant governor believes that the NPP would drive further innovation and urged the industry to embrace the platform.

“The NPP is an important piece of payments system infrastructure that will pave the way for further innovation in the payments system,” Ms Bullock said.

“[We] now have a world-class, fast payments system that I encourage the industry to embrace and create valuable services for their customers.”

[Related: RBA announces cash rate decision for March]

RBA highlights competition in mortgage market
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