The Australian mortgage lending environment was very different in 2005 to that of previous years, primarily because property prices growth has slowed since 2003. This report looks at the causes and consequences of the slow-down and what is expected in the future. It also discusses the growing importance and popularity of niche mortgage products in the market.
This report considers the growth of the market, analyzing growth patterns over the last five years
This report discusses the performance of various market sectors such as low-documentation, non-conforming, investment and reverse mortgages
This report analyses strategies employed by the most successful and innovative providers in the Australian market
Favorable macroeconomic conditions have been the primary driver of the mortgage market in recent years as these conditions influence both consumers' ability and willingness to borrow. The growth of the market is a reflection of sustained low interest rates, low unemployment levels and strong gross domestic product growth
While property prices are stabilizing and even falling, property in metropolitan areas such as Sydney, remains too expensive for consumers entering the property market for the first time. Consequently, many providers are developing products specifically for this type of borrower
Learn about the increasing prevalence of niche mortgage markets such as reverse mortgages, low-documentation and non-conforming
CHAPTER 1 INTRODUCTION 10
Scope 11
Who is the target reader? 11
How to use this report 11
CHAPTER 2 MARKET OVERVIEW 13
Key findings 13
Market Growth 14
The Australian mortgage market in terms of housing credit aggregates 14
Housing credit aggregates amounted to AUS$723.8 billion at the end of 2005 14
Housing credit aggregates are now more than 3.2 times Australian GDP 15
Housing credit aggregates per adult now surpasses AUS$44,000 16
Housing lending aggregates have increased rapidly in comparison to disposable income 17
Investment in property is starting to slow 18
The Australian mortgage market in terms of lending commitments 19
Combined lending commitments rose strongly in 2005 19
Lending commitments to investment housing peaked in 2003 and have dropped off since 20
Lending commitments to owner-occupied housing rose to AUS$144.6 by the end of 2005 21
Refinancing has continued to be a mortgage market trend 21
Net home equity injection/withdrawal peaked in 2003 and has dropped off substantially since 22
Housing affordibility showed signs of improvement towards the end of 2005 23
Market drivers 24
The mortgage market continues to be supported by favourable conditions 24
The low cash rate is reflected in the cost of borrowing 25
Inflation has fallen recently to 2.8% 26
Australian unemployment is at historically low levels 26
Australia continues to see steady GDP growth rate 27
Levels of deliquency and repossession are rising 27
Conditions are favourable for first home buyers 28
Property price indices of established homes are falling in some capital cities in Australia 28
First home buyers re-enter the market 29
First home buyers are borrowing the same amounts as existing homeowners 31
Affordability index for first home buyers is improving 32
First Home Buyers Grant debate re-enters parliament 33
The American government is supporting first time buyers 33
The Vendor Transfer Tax lives a short life 34
The increasing trend of securitization 34
CHAPTER 3 COMPETITIVE DYNAMICS 38
Key findings 38
Market shares 39
The mortgage market continues to be highly competitive 39
The top ten bank players, 2005 40
Commonwealth Bank is the largest market player with mortgage loans outstanding at AUS$123.2 billion at December 2005 41
BankWest and ING recorded the largest percentage increases in mortgage loans outstanding for the year ending December 2005 42
The 'big five' continue to hold greater than 80.0% of the total market 43
Overseas financial institutions are having difficulty gaining ground in Australia 45
National manages to regain rank in owner-occupied lending 47
Smaller players saw mixed results in 2005 47
HSBC and Bank of Queensland rank in the top ten for investment housing lending 49
And HSBC has the highest proportion of lending for investment housing 50
The performance of building societies and credit unions 53
Lending to housing by credit unions and building societies peaked at AUS$31.5 billion in 2005 54
The average credit union holds a significantly smaller housing loan portfolio than building societies
55Pressure mounts for building societies and credit unions to merge 57
The performance of specialist mortgage providers 59
The performance of banks, 2001-2005 59
The top five banks' market share of loans outstanding have been maintained over the 2001-2005 period 60
The burgeoning growth of niche mortgage products 62
The low-documentation mortgage market 62
The nature of low-doc products 63
Concerns for the risk levels of low-doc loans 63
Competitive dynamics of the low-doc mortgage market 63
Strong growth expected in the future 64
The non-conforming mortgage market. 64
The reverse mortgage market 65
The nature of reverse mortgages 65
The size of the reverse mortgage market 66
Other equity release products are expected to increase prominance in Australia 66
Innovations in the mortgage market 67
National's Risk-Based Loan 67
Mortgage products for First Home Buyers 68
Possibilities for 40 year mortgage to reduce monthly payments and make housing more affordable 69
Innovation in the shared equity loans 70
Innovation in the reverse mortgage market 70
CHAPTER 4 FUTURE DECODED 72
Mortgage lending commitments, 2006-2010 72
Macroeconomic variables underlying the forecasting model 72
Total mortgage lending commitments will reach AUS$279.9 billion by 2010 73
Refinancing will continue to be the fastest growing segment of the owner-occupied lending market 74
Conclusion 75
The mortgage market continues to strengthen and first home buyers increase their prevalence 76
The rise of niche lending 76
APPENDIX 77
Supplementary data 77
Definitions 84
Balances outstanding 84
CAGR 84
Cash rate target 84
Gross advances 84
Lending commitments 84
Non-conforming 84
Research methodology 84
Primary research 84
Secondary research 85
Forecasting methodology 85
Future readings 85
Current publications 85
Future publications 86
Relevant links 86
Custom research capabilities 86
Asia Pacific SPP writing team 88
How to contact experts in your industry 89
List of Tables
Table 1: The underlying macroeconomic variables of forecasting 73
Table 2: Housing and other personal credit aggregates, 2001-2005 77
Table 3: Housing credit aggregates per adult, 2001-2005 77
Table 4: Bank and non-bank credit aggregates for housing, 2001-2005 77
Table 5: Bank credit aggregates for owner-occupied and investment properties, 2001-2005 78
Table 6: Lending commitments for owner-occupied and investment properties, 2001-2005 78
Table 7: Housing Equity injected/withdrawn, 2001-2005 79
Table 8: Number of loans by lender, 2001-2005 79
Table 9: The average size of loans by lender, 2001-2005 80
Table 10: Lending commitments for owner-occupied properties by purpose, 2001-2005 80
Table 11: Number of dwellings financed for first home buyers, 2001-2005 81
Table 12: Housing lending commitments and securitizations, 2001-2005 81
Table 13: The value of mortgage lending per bank and respective market shares in 2004 and 2005 82
Table 14: Percentage growth over the 2004-2005 period for mortgage lending in owner-occupied and investment housing 82
Table 15: Mortgage loans outstanding for the largest five competitors in the Australian mortgage market, 2001-2005 83
Table 16: Forecast of mortgage lending commitments, 2006-2010 83
List of Figures
Figure 1: Housing credit aggregates stood at AUS$723.8 billion at the end of 2005, equivalent to 85.9% of total consumer credit aggregates 15
Figure 2: Housing aggregates have outstripped GDP to now be approximately 3.2 times the size of GDP 16
Figure 3: Housing credit aggregates per adult now surpasses AUS$44,000 in 2005 17
Figure 4: Housing lending has grown faster than personal disposable income while personal lending has fallen away altogether 18
Figure 5: Credit aggregates for investment properties amounted to AUS$179.9 billion at the end of 2005 equivalent to 33.8% of total mortgage lending 19
Figure 6: Lending commitments peaked at the end of 2005 at AUS$211.5 billion most likely reflecting the resurgence in owner-occupied housing 20
Figure 7: Refinancing has risen as a proportion of lending commitments from 19.1% to 27.9% in 2001 and 2005 respectively 22
Figure 8: Net housing equity withdrawal has been a trend since 2001 but has fallen significantly since peaking in 2003 23
Figure 9: The cash rate target has increased twice since the end of 2003 but remains low at 5.5% 25
Figure 10: Lending rates for housing are a mirror image of the cash rate target over the same period 26
Figure 11: First home buyers are returning to the market with 23,000 more loans in 2005 than 2004, up by 25.2% 30
Figure 12: Over the 2001-2005 period the average amount borrowed by FHBs and existing homeowners has converged 31
Figure 13: The level of securitization has risen by almost AUS$150.0 billion over the 1990-2005 period 35
Figure 14: The proportion of securitization to total housing lending commitments has compounded annually at 27.4% over the 2001-2005 period 36
Figure 15: The number of loans fell after 2003 but have increased significantly over the 2004-2005 period by 9.2 % 40
Figure 16: In December 2005 the Commonwealth Bank was the market leader with AUS$123.2 billion in loans outstanding and 9.2% growth in loans over the 2004-2005 period 42
Figure 17: Market shares have changed over the 2004-2005 period and Bendigo Bank has disappeared from the top ten altogether 44
Figure 18: Amongst the major banks, ANZ and NAB showed the strongest growth in both owner-occupied and investment housing lending. For the smaller banks, ING and BankWest achieved significant success in owner-occupied lending 49
Figure 19: At the end of 2005 HSBC had the largest proportion of investment housing lending with 56.0% followed by Adelaide Bank with 38.2% 52
Figure 20: Lending to housing is rising in similar proportions for credit unions and building societies
55 Figure 21: The top five may be losing some market share but they still dominate loans outstanding with 77.0% of the market 60
Figure 22: ANZ experienced market share growth over the 2001-2005 period while the other banks maintained or lost market share 61
Figure 23: Total mortgage lending commitments will grow to AUS$279.9 billion by 2010 74
Figure 24: Lending commitments for refinancing of owner-occupied properties will amount to AUS$57.7 billion by 2010 75
Figure 25: Core consulting capabilities 88
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