Aussie Home Loans Says It Is Poised To Achieve Dominance In Non Bank Mortgage Lending
John Symond, executive chairman of non bank financial Aussie Home Loans, says his company is poised to achieve dominance in the non bank mortgage lending segment, that, despite the fact that it is widely expected that there may be as many as three further interest rate hikes during 2010.
In an interview with Sky Business Channel, Mr. Symond said non bank finance continued to remain fragments, but that Aussie Home Loans was no diversified enough to emerge as one of the largest players in the sector.
“My aim with Aussie is to become one of the biggest retailers of financial services outside of the big banks because consumers need a safe alternative . . . when we see St George and Bankwest taken up, and Suncorp struggling, Hopefully, Aussie can fill some of that void.” he said.
In August 2008 Australian banking major Commonwealth Bank of Australia acquired one third of Aussie Home Loans, and the company now sells credit cards, personal loans and insurance products.
Mr. Symond says that the Australian central bank, the Reserve Bank of Australia, was doing a “pretty good” but has to walk a fine line between balancing the need to prevent the economy overheating, without causing a contraction.
“The housing market continues to perform extremely well, and maybe a bit too well,” he said.
Mr. Symond’s view contradicts results the results of a survey conducted by Australian Finance Group, which says first time mortgages declined by nearly half during January.
According to the mortgage broker, three consecutive interest rate rise, rolling back of Federal subsidies, and the disappearance of first time buyers has take its toll on the market.
“People are not moving or upgrading their family homes, they’ve slammed the brakes on borrowing,” AFG managing director Brett McKeon said.
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Non Bank Mortgage Lending Expected To Rebound In 2010
A survey conducted by professional services firm Deloitte suggests that non bank finance companies are expected to capture a greater share of the mortgage lending market next year, after funding constraints that caused them to cede business to the Big Four lenders subsides and global financial markets continue to recover their health.
The survey examined nine mortgage lenders and found that most believe that the securitisation market would re-emerge as a viable source of funding next year. Securitisation markets are the main source of funding for non bank financial institutions.
The cost of securitisation based funding during the financial crisis became prohibitively expensive, however James Hickey, Deloitte’s partner for banking says he believes that this was beginning to improve.
“It is encouraging that it has been coming down in the second half of 2009, and looking at the recent deal flows that have been coming through, we think there is hope that by the second half of 2010 it will be at a more economic level so that non-bank lenders can think about re-entering,” he said.
At the start of the week, Australian banking major Westpac revealed it would launch a $1 billion RMBS issue, marking the first major issue of this kind by a major lender since the market effectively shut in 2007.
“That’s an encouraging sign of confidence that the funding spreads in the RBMS market are coming to a level where the Big Four are saying that it’s now looking like a more viable form of funding relative to the other sources they have,” Mr Hickey said.
According to the survey results, The Big Four lenders are expected to continue their dominance of the mortgage lending market and will hold between an 80 to 90 per cent share of settlements in 2010. However they are expected to cede some of that market share in the coming years.
The market for residential mortgage lending is valued at close to $1.1. trillion in outstanding loans. New borrowings are valued at approximately $25 billion on a monthly basis, its highest level since June 2007.
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Aussie Home Loans Calls For RBA To Pause Rate Hikes
Non bank finance company and leading mortgage broker Aussie Home Loans has called for the Reserve Bank of Australia (RBA) to leave interest rates unchanged when it holds its monthly board meeting next week, or risk hurting retail sales during the traditionally busy Christmas shopping season.
Economists and the financial markets are predicting that the central bank is likely to raise the official interest rate to 3.75 per cent or by 25 basis points when it meets next Tuesday.
John Symond, executive chairman of Aussie Home Loans says that credit continues to remain in short supply, and further interest rate rises would negatively impact consumer confidence and reduce lending, despite indications that the Australian economy has put the worst of the downturn in the global economy behind it.
“We are heading into the crucial Christmas retail season and a rate hike will hurt sales and create further concerns for households. The economy is recovering but is susceptible to any economic shocks, which continue to be felt overseas. The Reserve Bank needs to be very cautious in lifting rates prematurely.” Mr. Symond said in a statement on Thursday.
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Big Four Banks Have Total Control Of Australian Mortgage Market
Australia’s Big Four banking groups have come to completely control the market for mortgages, with competition beyond the majors all most non-existent, as smaller lenders struggle to compete.
Analysts fear that the majors will exit the global economic crisis with far too much market power.
Lending data, which was released on Wednesday, has added more weight to calls for Kevin Rudd’s government to either unwind sovereign funding and deposit guarantees or at least have a plan in place for eventually lifting the measure.
Smaller regional Australian banks and non bank financial companies feel that the Big Four have an unfair advantage as a result of the scheme. Whilst Federal Treasure Wayne Swan faces further pressure to increase the size of his $8 billion support package for the mortgage backed securities market, an important source of finance for regional lenders and non bank finance companies.
Growth in mortgage lending is expected to continue after the Reserve Bank of Australia, at its monthly rate setting and policy meeting on Wednesday, maintained official interest rates at half century lows. The central bank did express concerns at the growing threat of inflation, resulting in economists anticipating at least one interest rate hike before the end of the year.
On Wednesday the Australian Prudential Regulation Authority (APRA) released data showing that the Big Four banking groups in July, captured almost 100 per cent market share of the new mortgage market, valued at approximately $7 billion. Prior to the freeze in credit markets last year, the majors controlled roughly 60 per cent of the new mortgage market.
The dominance has led to regulators growing concern over lack of competition in the Australian banking landscape and opposition to the possibility of future mergers within the banking space. Last year Australian competition regulator Graham Samuel reluctantly approved CBA’s acquisition of regional lender Bankwest, approving the deal in the face of intense pressure as panic gripped financial markets, and the possibility of a collapse seemed imminent.
Non bank financial companies have also been acquired by the majors, with Wizard, RAMS and most recently Challenger Financial’s mortgage unit all having been acquired by Big Four banking groups.
The Sovereign funding guarantee means that higher rated banks such as the majors pay less for the use of the guarantee than their smaller regional rivals, resulting in lower funding costs and smaller rivals being unable to compete on mortgage pricing.
Commonwealth Bank and Westpac dominate the nation’s mortgage market, respectively writing 40 per cent and 35 per cent of new loans, the APRA figures show. St George Bank, now owned by Westpac, winning about 13 per cent of new loans, followed by NAB and ANZ.
The data from APRA shows that Australian mortgage market is extremely robust, aided by low interest rates and Federal government subsidies. The market for mortgages, after having increased by 0.8 per cent in July, has grown by an annualised rate of 9.6 per cent.
The Australian banking system was already highly concentrated before the global financial crisis, thanks to the 1990s recession, which wiped out the second tier. The four biggest banks are expected to report about $15.4 billion in profits this year, cementing their place among the world’s most successful banks.
RHG Warns Of Possible Default
Australian non banking finance company RHG limited, which previously made home loans under the brand Rams Home Loans issued a warning that it may have to default on its financing obligations, if it cannot negotiate with creditors over upcoming debt repayment deadlines, or remains unable to sell or securitise a larger portion of its mortgage book.
The non bank mortgage lender, which has already divested the majority of its book to Westpac, recorded full year profits of $120 million, down 4 per cent from the previous year. The company cautioned that as its mortgage portfolio matured over the next few years, revenue and profit would continue to decline.
The board declared there would not be a dividend paid to shareholders for the past financial year.
RHG’s mortgage portfolio is worth $7.68 billion of which $5 billion is financed through warehouse facilities and the remaining part of the portfolio securitised through residential mortgage backed securities.
“The group’s mortgage book is closed and in run-off. The group will continue to manage and service its mortgage book. The group remains in discussion with its various warehouse providers in regards to future maturity dates. However, a high level of uncertainty still remains in the current market, which will likely result in the group selling further mortgages at par in repayment of warehouse facility balances. A default will likely arise if a warehouse cannot be renewed and the mortgages are not sold. The directors are satisfied that any sale of mortgages in repayment of warehouse facilities or an event of default … will not affect the group’s ability to continue as a going concern.” RHG said in a statement to the market.
In previous years, RHG was a major force in the non bank lending market when it operated under the Rams Home Loans brand; however the company has been hard by the freeze in wholesale funding markets, which began nearly two years ago.
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Correction:
This piece initially incorrectly suggested that Rams Home Loans had warned of a possible default, when in fact that company is now a wholly owned subsidiary of Westpac Banking Corporation and neither Westpac nor Rams Home Loans are in danger of default. The company in question is now called RHG Limited, which prior to the sale of the brand to Westpac made home loans under the Rams Home Loans Brand.
We sincerely apologise for any inconvenience caused, and have edited the blog post to reflect the information that was conveyed to us.
Credit Unions And Building Societies Offer Debt Relief For Mortgage Holders
Non banking finance companies such as credit unions and building societies say they have already taken measures to provide relief for customers who have lost their jobs.
The big four Australian banks committed to offering debt relief to their mortgage holders for a period of twelve months. The offer is available to borrowers who have lost their jobs as a result of the slowdown in the economy and was a deal the lenders reached with the Kevin Rudd government.
Non bank finance companies such as building societies and credit unions currently account for nearly 20 per cent of the home loan markets, and already have the same legal provisions in place according to The Association of Building Societies and Credit Unions.
“In terms of the commitments that the big banks have made… we absolutely already comply with all of those principles. It’s exactly what the banks have promised in terms of their deal with the government.,”. Association CEO Louise Petschler told ABC Radio