What opportunities and challenges lie ahead for the mortgage industry? Reporting from the 2012 Australian Mortgage Conference, The Adviser reviews some of the issues discussed by many of the industry’s top minds at this important event
THE AUSTRALIAN mortgage industry continues to face challenges; however, Australia is better placed than other major economies facing tough conditions.
We may have a flat property market, but March’s Genworth Homebuyer Confidence Index (HCI) showed consumer confidence has increased over the past six months, buoyed by easing inflation and interest rates.
Nearly 40 per cent of Australians believe now is a good time to buy a home – up from 25 per cent in 2010. It is clear that opportunities exist.
Genworth is dedicated to working with lenders, brokers and aggregators to develop innovative products in response to changing borrower needs – and to stimulating market growth.
We have supported the Australian mortgage market for close to 50 years and are committed to helping borrowers get into their homes sooner, so we were proud to partner the 2012 Australian Mortgage Conference.
There is cause for optimism: the HIA Housing Affordability Index showed improved affordability in March; Deloitte Access Economics forecasts retail will bounce back in 2013; and our own research echoes this sentiment, with a two per cent increase to March in the Genworth HCI driven by a decrease in both the experience and expectation of mortgage stress (22 per cent down from 25 per cent in September 2011).
In good times and in more challenging ones, Genworth remains focused on supporting the growth of the industry.
CHIEF COMMERCIAL OFFICER
ON 23 FEBRUARY, leaders from every area of mortgage lending gathered in Sydney for the 2012 Australian Mortgage Conference.
Speakers at this important event in the lending industry calendar included renowned economics expert Chris Richardson, director at Deloitte Access Economics, and the distinguished Dr Luci Ellis, head of financial stability at the Reserve Bank of Australia.
A highly interactive event, the conference attracted more than 100 senior delegates from the banking, lending and broking professions.
Building on the success of 2011’s inaugural event, the theme of this year’s Australian Mortgage Conference was ‘A brave new world – Challenges in a changing market’.
This theme reflected the impact of global economic uncertainty and turbulent financial markets on mortgage lending, while at the same time, highlighting opportunities for brokers working in an increasingly professional environment.
From the state of the broader lending market to the growing presence of self-managed super funds, the conference covered the full spectrum of issues shaping the needs of the industry.
This month, The Adviser looks at some of the key themes to emerge.
Opening the Australian Mortgage Conference, Dr Luci Ellis, head of the financial stability department at the Reserve Bank of Australia, discussed the importance of maintaining prudent standards in mortgage lending to ensure financial stability.
Dr Ellis emphasised in particular the need to make responsible lending decisions to avoid any outcome in the Australian housing market like that which occurred in the United States.
“If I may use an analogy,” Dr Ellis said, “we know that the key to maintaining a healthy weight is to have a healthy diet and to exercise regularly. Yet we find it hard to avoid temptation, and so it is with maintaining a healthy mortgage market.
“It is always tempting to ease lending standards and dress that up as responding to competition or giving the customer a better deal.
“It must be hard to resist the disappointed customers who just want to borrow that bit extra to purchase their dream home, especially when the loan officer is also trying to make budget on new loan approvals,” she said, “but in the experience of the United States, we have seen what can happen when lenders yield to that temptation.
If lenders were to ease lending standards beyond the point of prudence, they would not be doing anyone any favours, Dr Ellis said.
“Their customers, the borrowers, would be overburdened by their debts. The firms themselves would face difficulties if loan defaults were to rise, and financial stability would be much harder to maintain.”
Dr Ellis concluded that Australia remains well positioned to avoid any housing crisis like that which occurred in the United States so long as lenders resist any temptation to relax their judiciousness.
“I am pleased to say that I do not currently see signs of widespread lax lending practices here in Australia. Indeed, the Australian Prudential Regulation Authority (APRA) has been consulting with the boards of the larger banking institutions about their housing lending standards.
“But there will be times – good times, when everything seems rosy – when lenders will find it hard to maintain the prudence necessary.
“While the regulators can take action and central bankers like me can warn of the risks, in the end we all have a stake in maintaining financial stability. Financial stability is in the collective interest of all Australians.”
THE EUROPEAN CRISIS
The European sovereign debt crisis, the fate of the Euro and all the associated fears, forecasts and speculation of how it will play out, have dominated international financial news in recent months.
In his keynote presentation to the conference, Dr Chris Richardson, director at Deloitte Access Economics, discussed two potential outcomes.
‘Scenario A’ is a “more of the same” outcome, with China’s strength trumping weaknesses in the US, Europe and Japan.
Dr Richardson’s ‘Scenario B’, however, is much more sombre and “quite possible too”.
In this scenario, Europe “blows up”, various European banks become insolvent and this causes a knock-on effect on financial markets, China, and commodity prices.
“Although the risks are rising, Deloitte doesn’t yet see the latter as the most likely outcome,” Dr Richardson said, “but were it to happen, the effects could be notable – just as was true in the global financial crisis.”
Turning to Scenario A, Dr Richardson told the conference he believes economic growth will vary between sectors but that, generally speaking, it should be solid.
Unfortunately, however, the finance sector could be one that faces many challenges, even in this more optimistic scenario, Dr Richardson said.
“It has become clearer that weak credit growth may be the ‘new normal’,” he added.
“With the Eurozone crisis also on the horizon and rumours of the potential for Japanese competition in mortgage markets, 2012 may be a tough year for the finance sector.”
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