The global financial crisis squeezed many second-tier lenders out of the market and caused competition in the sector to all but collapse.
But second-tier lenders are fighting back and many in the industry predict they are set for a resurgence in 2010.
According to the prudential regulator, APRA, the big four banks accounted for almost 100 per cent of the $7 billion in new mortgages written in July.
Before last year’s freeze in the global funding markets – and various mergers – their share of new mortgages was running at about 60 per cent.
Reduced competition in the sector – with Westpac swallowing St George, CBA acquiring Bankwest, and Wizard and RAMS home loans also being snapped up by bigger rivals in the past year – has put the regulators under pressure to oppose future tie-ups.
But for now it’s full steam ahead, with NAB’s acquisition of Challenger’s mortgage management business recently getting the green light from the ACCC.
To prevent total big four domination the federal government is being urged to unwind the funding guarantees that have given the majors an advantage over their smaller rivals and non-bank lenders.
But while the government has kept mum on whether it will heed these calls, the outlook for second-tier lenders is not all grim.
The RBA’s decision this month to lift the official cash rate to 3.25 per cent is being viewed as an early indicator that Australia’s economy is on the road to recovery.
Consumer and business confidence have also risen sharply over the last quarter and are both at their highest level in months.
This renewed confidence is seeing a number of second-tier lenders start to re-enter the market to take advantage of the current climate.
Bendigo and Adelaide Bank’s general manager of third-party mortgages Damian Percy says he believes borrowers and brokers will find better alternatives to the banks once the economy stabilises.
“With a strong balance sheet, a dedicated third-party business in Adelaide Bank and the servicing support of a national network under the Bendigo Bank brand, we believe we are well positioned to provide that alternative,” says Mr Percy.
“We are also continuing to support our mortgage manager partners and the very strong service proposition they provide the intermediary market and their own distribution channels.”
But he fears the room for second-tier lenders in the market is marginal.
“The majors are in such a dominant position that I expect there to be more pressure for brokers to conform to the roles and processes ‘preferred’ by those banks,” he says.
“I have a degree of nervousness that the raison d’être of the broker channel – their independence – may be at risk if the public perception becomes that they are simply agents for one or two institutions. Time will tell.”
ING DIRECT’s executive director of mortgages Lisa Claes says the lender is committed to seeing greater competition in the market and is currently gearing up to launch a new offset product which will be available via brokers next month.
ING DIRECT is currently Australia’s fifth largest lender and experienced strong growth last financial year despite the challenging market conditions.
“The [offset] product will be officially launched within a month. It will be a very competitive offset product. It is something our brokers have asked for and we are keen to deliver,” she says, underlining the lender’s commitment to the broker channel.
“Brokers are by far and away our largest distribution channel and we want to make sure we continue to support them in every way possible,” she says.
ING DIRECT is not the only second-tier lender keen to ramp up its support for the broker channel.
After months of industry rumblings, Macquarie Bank last month broke its silence on its rumoured plans to re-enter the mortgage broking industry and it seems the bank may already have a new product in the pipeline.
Macquarie retreated from mortgage lending in March 2008 when the securitisation market ground to a halt and spiralling funding costs hit profits.
In recent months, the bank has been linked to a new aggregation group believed to include The Brokerage, National Brokers Group and The Mortgage Professionals.
While Macquarie’s head of mortgages Tim Brown will not be drawn on speculation the bank plans to resume mortgage lending, he says Macquarie has a firm eye on the market.
“We are keen to re-enter the market at some stage and are always looking at the funding costs,” he says.
“That said, we are not prepared to put a timeframe on anything.”