Australian Mortgages 2004

CHAPTER 1 EXECUTIVE SUMMARY

• Chapter 3 - Market Context
• Chapter 4 - Mortgage Market Sectors
• Chapter 5 - Competitive Dynamics
• Chapter 6 - Future Decoded

CHAPTER 2 INTRODUCTION

• Scope
• Who is the target reader?
• How to use this report

CHAPTER 3 MARKET CONTEXT

• Market growth
• Housing credit aggregates amounted to AUSD538.8 billion at the end of 2003
• Housing credit aggregates are now more than 2.8 times Australian GDP
• Housing credit aggregates per adult have now surpassed AUSD35,000
• Bank credit aggregates for housing stood at AUSD441.0 billion at the end of 2003
• Banks have increased their exposure to the residential mortgage market at the expense of lending to business
• The growth of the investment mortgage market has fuelled bank lending
• Lending commitments for housing amounted to AUSD197.6 billion in 2003
• The growth in refinancing has been another key mortgage market trend
• Home equity withdrawal has contributed to the consumer spending boom
• Since 2001 home equity withdrawal has taken off
• Market drivers
• Macroeconomic conditions have supported the mortgage market's growth
• Low interest rates have been the single biggest driver of the Australian mortgage market
• The low cash rate target has been reflected in the cost of borrowing
• A further interest rate rise is expected in the second half of the year
• Australian unemployment is at a historical low
• Australia continues to record stronger GDP growth that other major economies
• Levels of delinquency have fallen to record lows
• Mortgage market growth has been fuelled by greater competitive intensity
• Non-bank players have gained market share based on an expanded product range and competitive rates
• Property has become a favored means of funding retirement
• The impact of the Vendor Transfer Tax should not be overestimated
• Securitization has become more common and has in turn fuelled greater volumes of mortgage lending
• The regional banks in particular have come to rely on securitization programs
• Brokers have become a much more important mortgage distribution channel
• Innovative lenders have expanded their product range to appeal to more consumer segments
• The Muslim community remains an underserved consumer segment
• The Muslim population of Australia numbers more than 320,000
• Many Muslims would switch to a Islamic mortgage product if one were available
• The challenge facing lenders is to provide Islamic mortgage products that are competitive with regular mortgage products
• The marginalization of first time buyers
• Property price increases in Australia have surpassed those in other property price hotspots
• Few countries can compete with Australia on house price increases
• First time buyers now account for less than 15 per cent of properties purchased
• First time buyers now borrow almost as much as existing homeowners
• Stamp duty reductions will have only a short term impact
• Some lenders have recognized an opportunity in the first time buyer segment
• Lenders in the UK have come up with alternative solutions to the first time buyer problem
• The market slowdown
• Property price increases have slowed in 2004
• The Commonwealth Bank Property Price Index shows price stagnation in the last few months at a national level
• Some states are recording property price falls although not all are doing so
• States still reporting an increase in their median property price
• States reporting a fall or stagnation in their median property price
• There has not been a significant downturn in mortgage lending
• The view of Datamonitor's Retail Banking Team
• The changing role of brokers
• The mortgage market slowdown is encouraging lenders to reassess their broker relationships
• Bank of Queensland pulls out of the broker market
• Bank of Queensland may just be small enough to pull away from the broker channel without significantly affecting its loan volumes
• Commission structures are under scrutiny
• St George plans to link commissions to loan profitability
• Commonwealth Bank is considering a move to a flatter commission structure
• RAMS tries the trail only model
• Going forward more lenders will examine their broker commission structures
• Commission rebates could also fuel change in the broker market
• Franchised branches: a significant threat to the broker channel
• Regulation is reshaping the mortgage broker market
• The new regulation aims for greater transparency
• New South Wales will serve as the benchmark for regulation at a national level
• Conclusion

CHAPTER 4 MORTGAGE MARKET SECTORS

• The low-documentation mortgage market
• The nature of low-doc products
• Low-doc products are aimed at borrowers who cannot or choose not to verify their income
• A new product in the Australian market
• Low-doc lending accounted for 14.2 per cent of lending commitments in 2003
• The ATO continues to threaten a crackdown on low-doc lending
• Initial ATO investigations have found evidence of tax under reporting by low-doc borrowers
• The threat of an ATO investigation into tax avoidance may have been sufficient to curtail the practice
• APRA is focusing on the riskiness of low-doc lending
• APRA believes that the concessional risk weighting should not apply to low-doc loans unless....
• APRAs proposals will reshape the low-doc market
• There is scant evidence indicating that low-doc loans are riskier than regular mortgage loans
• The robustness of low-doc lending is yet to be tested
• The non-conforming mortgage market
• The nature of non-conforming lending
• Non-conforming and low-doc are not one and the same
• Non-conforming loans have a shorter term than regular mortgage loans
• Non-conforming lending has a long history in Australia
• Liberty Financial now dominates the non-conforming market
• Lending commitments in the non-conforming mortgage market amounted to AUSD3 billion in 2003
• The non-conforming market has performed well but its growth has been restricted as mainstream lenders have relaxed their lending criteria
• The non-conforming market in the UK shows the potential for non-conforming lending in Australia
• The growth of the UK market has been driven by specialist players and entrants from the mainstream market
• Mainstream entry into the Australian non-conforming market is on the horizon
• The reverse mortgage market
• The nature of reverse mortgage products
• The target audience is those over 60 that own their own home
• The reverse mortgage is small but poised to grow
• The equity release market is also growing in the UK
• The factors driving the success or failure of a product are common to Australia and the UK
• Targeted marketing should be employed by Australian reverse mortgage providers
• Conclusion

CHAPTER 5 COMPETITIVE DYNAMICS

• Competitor data
• The top ten bank players, 2004
• Commonwealth Bank is the largest player with mortgage loans outstanding at the end of June 2004 of AUSD102.5 billion
• Suncorp Metway and ING recorded the largest percentage increases in their mortgage loans outstanding in the four months to June 2004
• The 'big five' have an almost 85 per cent share of total bank lending
• The structure of the Australian banking market has protected it from overseas entry
• In lending for owner occupied properties Westpac assumes second position head of National Australia Bank
• The big five maintain their dominance in the investment mortgage market. However, HSBC enters the top ten
• Compared to other banks HSBC is more exposed to the investment mortgage market
• Bank performance, 1999-2003
• The top five banks maintained their market share over the period 1999-2003
• Bank of Queensland and Bendigo Bank, two small but successful players
• Accounting for the success of Bank of Queensland and Bendigo Bank
• Conclusion

CHAPTER 6 FUTURE DECODED

• Mortgage lending commitments, 2004-2008
• Macroeconomic projections underpinning Datamonitor's forecast of the Australian mortgage market
• Total mortgage lending commitments reach AUSD234.9 billion by 2008
• Refinancing will be the fastest growing section of the market over the next five years
• Conclusion

CHAPTER 7 APPENDIX

• Supplementary data
• Market Context
• Competitive Dynamics
• Future Decoded
• Definitions
• Balances outstanding
• CAGR
• Cash rate target
• Gross advances
• Lending commitments
• Non-conforming
• Research methodology
• Primary research
• Secondary research
• Forecasting methodology
• Future readings
• Current publications
• Future publications
• Relevant links
• Datamonitor's custom research capabilities
• Asia Pacific SPP writing team
• How to contact experts in your industry

List of Tables

• Table 1: Housing and other personal credit aggregates, 1999-2003
• Table 2: Housing credit aggregates per adult, 1999-2003
• Table 3: Bank and non-bank credit aggregates for housing, 1999-2003
• Table 4: Bank credit aggregates for owner occupied and investment properties, 1999-2003
• Table 5: Lending commitments for owner-occupied and investment properties, 1999-2003
• Table 6: Lending commitments for owner-occupied properties by purpose, 1999-2003
• Table 7: Home equity injected/withdrawn, 1999-2003
• Table 8: Share of total number of loans advanced by lender type, 1999-2003
• Table 9: Housing credit aggregates securitized, 1999-2003
• Table 10: Product innovations in the Australian mortgage market and their target audience
• Table 11: Number of loans advanced to first time buyers, 1999-2003
• Table 12: Median house prices according to the Australia Bureau of Statistics and the Real Estate Institute of Australia
• Table 13: Commission rebates offered by Peach Home Loans
• Table 14: Lending commitments in the low-doc mortgage market, 2000-2003
• Table 15: Liberty Financial's securitizations completed to date
• Table 16: Mortgage loans outstanding for largest five competitors in the Australian mortgage market, 1999-2003
• Table 17: Mortgage loans outstanding for Bank of Queensland and Bendigo Bank, 1999-2003
• Table 18: Bank of Queensland and Bendigo Bank branch numbers, 2001-2004
• Table 19: Macroeconomic projections underpinning Datamonitor's forecast of the Australian mortgage market
• Table 20: Forecast of mortgage lending commitments, 2004f-2008f
• Table 21: Number of loans advanced by lender type, 1999-2003
• Table 22: Home equity injected/withdrawn, 1990-1998
• Table 23: Mortgage balances outstanding for the top ten banks in the Australian mortgage market, March-June 2004
• Table 24: Share of total mortgage balances outstanding for the top ten banks in the Australian mortgage market, March-June 2004
• Table 25: Mortgage balances outstanding on loans for owner occupied properties for the top ten banks in the Australian mortgage market, March-June 2004
• Table 26: Share of total mortgage balances outstanding on loans for owner occupied properties for the top ten banks in the Australian mortgage market, March-June 2004
• Table 27: Mortgage balances outstanding on loans for investment properties for the top ten banks in the Australian mortgage market, March-June 2004
• Table 28: Share of total mortgage balances outstanding on loans for investment properties for the top ten banks in the Australian mortgage market, March-June 2004
• Table 29: Lending for investment properties as a percentage of total mortgage lending for the top ten banks, March-June 2004
• Table 30: The largest five competitors share of the Australian mortgage market, 1999-2003
• Table 31: Mortgage loans outstanding for other players in the Australian mortgage market, 1999-2003
• Table 32: Market share of other players in the Australian mortgage market, 1999-2003
• Table 33: Forecasted percentage share of total mortgage lending commitments, 2004-2008
• List of Figures
• Figure 1: Housing credit aggregates stood at AUSDD538.8 billion at the end of 2003, equivalent to almost 85 per cent of total consumer credit aggregates
• Figure 2: Since 1990 Australian GDP has grown by more than 56 per cent. However, housing credit aggregates have increased by almost 550 per cent
• Figure 3: Housing credit aggregates per adult now surpass AUSD35,000
• Figure 4: Bank credit aggregates for housing increased to AUS441.0 billion at the end of 2003 while non-bank credit aggregates for housing increased to AUSD26.2 billion
• Figure 5: Australian banks have increased their exposure to the residential property market over the last decade such that at the end of 2003 lending to persons for housing accounted for 53.4 per cent of total bank lending
• Figure 6: Credit aggregates for investment properties amounted to AUSD139.9 billion at the end of 2003 equivalent to more than one-third of total bank credit aggregates for housing and up from AUSD67.5 billion in 1999
• Figure 7: Lending commitments for housing amounted to almost AUSD200 billion in 2003, more than 35 per cent of which was accounted for by investment property purchases
• Figure 8: Refinancing accounted for 25.3 per cent of lending commitments for owner occupied properties in 2003, up from 15.3 per cent in 1999
• Figure 9: Since 2001 households have withdrawn a larger amount from home equity than they have injected
• Figure 10: Though increased twice towards the end of 2003, the Reserve Bank's cash rate target remains low
• Figure 11: A lower cash rate target has been reflected in mortgage rates
• Figure 12: Housing lending aggregates have increased exponentially relative to disposable income while personal lending aggregates increased in line with disposable income until the last two years
• Figure 13: Wholesale lenders have grown their market share of owner occupied loans from 7.5 per cent in 1999 to 15.1 per cent in 2003
• Figure 14: Securitized housing aggregates amounted to almost AUSD100 billion in 2003
• Figure 15: At the end of 2003 the Australian house price index for an established house reached 245 index points
• Figure 16: The increase in Australian property prices is in line with the increase in prices in the UK
• Figure 17: Since 2001 first time buyers have been forced out of the property market to the extent that in 2003 they accounted for less than 14 per cent of dwellings financed
• Figure 18: First time buyers have been forced to borrow ever larger amounts in recent years both in absolute terms and relative to existing homeowners
• Figure 19: According to Commonwealth Bank the median house price in Australia has been unchanged since May and the median unit price has been unchanged since March
• Figure 20: Lending commitments peaked in October 2003. However, since then there has not been an obvious downturn in mortgage lending
• Figure 21: Lending commitments in the low-doc mortgage market have increased significantly in recent years both in absolute terms and relative to lending commitments in the mortgage market as a whole
• Figure 22: Following the implementation of APRA's proposals concessional risk weighting will only apply in some circumstances
• Figure 23: At the end of June 2004 the largest player in the Australian mortgage market, Commonwealth Bank, had mortgage loans outstanding of AUSD102.5 billion, up by 6.2 per cent in four months
• Figure 24: The largest five banks have a combined share of bank mortgage lending of 84.6 per cent
• Figure 25: In lending for owner occupied properties, with loans outstanding of AUSD55.2 billion, Westpac nudges National Australia Bank into third place
• Figure 26: In lending for investment properties HSBC enters the top ten, with mortgage loans outstanding of AUSD2.7 billion
• Figure 27: Around one-third of the total value of bank mortgage loans outstanding is accounted for by the investment mortgage market although for HSBC the percentage is higher than 60 per cent
• Figure 28: The largest five players in the Australian mortgage market maintained their combined market share over the period 1999-2003, with Commonwealth Bank holding on to its position as the largest lender
• Figure 29: Bank of Queensland and Bendigo Bank remain small players in the Australian mortgage market yet both have managed impressive increases in the lending volumes
• Figure 30: Bank of Queensland and Bendigo Bank have continued to expand their branch networks in 2004
• Figure 31: Total mortgage lending commitments will amount to almost AUSD235 billion in 2008
• Figure 32: Lending commitments for refinancing of owner occupied properties will amounted to AUSD 39.5 billion in 2008
• Figure 33: Datamonitor's core consulting capabilities