Mortgages in Australia 2008

Table of Contents

• Overview
  • Catalyst
  • Summary
• Executive Summary
  • Market Context
    • Illiquid global credit markets and record low Australian housing affordability threaten the market
  • Customer Focus
  • Product Focus
  • Competitive Dynamics
    • CBA is the largest lender with outstanding loans of A$172 billion
    • ANZ currently is the major bank with the highest proportion of satisfied mortgagors
  • Future Focus
    • Lending commitments will reach an estimated A$349 billion by 2012
• Table of Contents
• Table of figures
• Table of tables
• Market Context
  • The Australian mortgage market has grown strongly over the last two decades
    • Housing credit aggregates reached A$909 billion in 2007
      • Housing credit per adult Australian exceeded A$54,000 in 2007
      • Australian mortgagors have become more leveraged
      • Property investing has helped fuel the growth of housing credit aggregates
    • Lending commitments amounted to A$263 billion in 2007
      • The proportion of lending commitments attributable to investors has risen since 1993
      • Refinancing has become more common in the Australian mortgage market
      • First time buyers are continuing their tentative return to the market
      • Lending commitments for new construction have not kept up with lending for existing properties
  • The Australian mortgage market faces internal and external challenges
    • Property prices have grown strongly, especially in major cities
      • House price growth has been especially strong in Perth
      • Rising property prices have priced many Australians out of the market
    • Rising interest rates have exacerbated the already difficult housing situation
      • The cash rate target has risen 12 consecutive times since 2001
      • Industry observers widely believe the cash rate target will increase further in 2008
      • The threat of rising interest rates has revived interest in fixed rate loans
    • Adverse global credit conditions have recently impacted on the Australian mortgage market
      • The global credit crunch has affected banks and non-bank lenders alike
      • Increasing lender funding costs will lead to rising mortgage rates
• Customer Focus
  • Record low affordability threatens Australian mortgagors
    • Many Australian mortgagors are under financial stress
    • Getting on the property ladder is considered an impossibility by an increasing number of people
  • Australian mortgagors often refinance to achieve the best rate
    • The average mortgage is now only held for four to seven years
    • Refinancing strategies can be risky in the face of adverse market conditions
  • Attitudes towards home ownership are changing
    • Traditionally home ownership has been an integral part of the "Australian Dream"
    • The younger generation' s attitudes differ from their elders'
• Product Focus
  • Mortgage products have evolved and become more diversified
    • Mortgages now offer more features and options
    • Low deposit products have become very common
    • Low documentation products cater to those who can not provide proof of income
    • Longer loan terms have been introduced but are not yet popular
  • New mortgage products have entered the market
    • Mortgage packages have entered the mainstream and are openly advertised
    • Private market shared equity mortgages were recently introduced
    • Reverse mortgages have become more common but are still a small niche product
• Competitive Dynamics
  • Pricing has been subjected to considerable competitive pressure in Australia
    • Non-bank lenders challenged the banks in the 1990s
    • Foreign lenders have recently had success in the Australian market
    • Average loan margins have steadily shrunk as a result of competition
  • Banks have recently won back market share from non-bank lenders
    • Unfavorable global credit markets have disproportionately affected non-bank lenders
    • Borrowers have responded to uncertain market conditions by returning to brands perceived as safe
  • Channels to market are the focus of strategic shifts
    • The branch channel competes with the mortgage broker channel
    • The mortgage broker channel faces its own unique challenges
      • National legislation is expected to be introduced in 2008
      • Many brokers are looking to diversify their product range
  • CBA is still the largest Australian lender in a fragmented market
    • CBA is the largest lender with outstanding loans of A$172 billion
      • New entrants are threatening incumbents with rapid growth
      • The five largest banks hold around two thirds of outstanding mortgages
      • ANZ currently is the major bank with the highest proportion of satisfied mortgagors
    • Credit unions and building societies are squeezed by increasing competition
    • Specialist mortgage lenders are riding out the storm
      • The proportion of outstanding mortgages attributable to securitization vehicles has recently fallen
• Future Focus
  • Mortgage products will continue to evolve
    • There will be demand for products offering better affordability
    • Product convenience will increase
    • In the long term the internet has the potential to revolutionize the mortgage market
    • Customized mortgages are a way to serve niche customers
  • Government initiatives may change the playing field
    • The new Australian government has promised to tackle housing affordability
    • A recent government initiative will introduce tax-exempt savings vehicles for prospective first home buyers
      • The First Home Saver Account scheme has attracted some criticism
  • Lending commitments will reach an estimated A$349 billion by 2012 under the neutral view
    • Datamonitor' s forecasting methodology of lending commitments consider both macroeconomic and soft factors
• APPENDIX
  • Supplementary data
  • Definitions
    • Balances outstanding
    • CAGR
    • Cash rate target
    • Gross advances
    • Lending commitments
    • Mortgage manager
    • Mortgage offset account
    • Non-conforming
    • Tranches
  • Methodology
  • Further reading
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Tables
    • Table 1: Top 15 bank lenders in Australia
    • Table 2: Monthly repayments are reduced with longer loan terms
    • Table 3: Top 15 bank lenders in Australia
    • Table 4: Government contributions will be higher for higher tax rates
    • Table 5: Credit aggregates in Australia, 1994-2007
    • Table 6: Debt to assets ratio, 1993-2007
    • Table 7: Housing credit aggregates per Australian adult, 1993-2007
    • Table 8: Outstanding owner-occupier loans and investor loans, 1993-2007
    • Table 9: Owner-occupier and investor lending commitments, 1993-2007
    • Table 10: Refinancing as a proportion of monthly owner-occupier lending commitments, 1993-2007
    • Table 11: First time buyer proportion of owner-occupier dwellings financed, 1993-2007
    • Table 12: Construction and existing dwellings lending commitments, 1993-2007
    • Table 13: Monthly building approvals for all dwellings, 1993-2007
    • Table 14: Average monthly sales prices of owner-occupier established dwellings, 1993-2007
    • Table 15: Quarterly property price index of established homes in the eight capital cities, 2003-07
    • Table 16: Quarterly house price index for Sydney, Melbourne and Perth, 2003-07
    • Table 17: Cash rate target, 1993-2008
    • Table 18: Fixed rate proportion of owner-occupier dwellings financed, 1993-2007
    • Table 19: Some groups of mortgagors are more likely to be stressed than others
    • Table 20: Interest payments to disposable income, 1993-2007
    • Table 21: How difficult do you think it would be for you to keep up repayments on a mortgage for the next five years?
    • Table 22: How long did you keep your mortgage with your previous mortgage provider and how long do you expect to keep your mortgage with your current mortgage provider?
    • Table 23: Owner-occupier proportion of private dwellings, 1996-2007
    • Table 24: Attitudes towards home ownership and risk differ between age groups
    • Table 25: How much deposit did you have when you got your main mortgage?
    • Table 26: What would make you bundle different financial products with a single provider?
    • Table 27: Bank and non-bank owner-occupier lending commitments, 1993-2007
    • Table 28: The value of outstanding securitized residential loans, 1993-2007
    • Table 29: Outstanding mortgages for a sample of foreign banks, 2002-07
    • Table 30: Margin of standard bank rate over cash rate target, 1993-2007
    • Table 31: Margins of banks' and mortgage managers' loans over the cash rate target, 2004-07
    • Table 32: RAMS stock price, 2007-08
    • Table 33: Australian consumers have come to strongly prefer major domestic brands
    • Table 34: Total value of outstanding mortgages for the top ten Australian bank lenders, January 2008
    • Table 35: Market share of outstanding mortgages for the top ten Australian mortgage lenders, January 2008
    • Table 36: Proportion of mortgagors that are very or quite satisfied for a sample of major lenders, 2007
    • Table 37: Credit unions and building societies outstanding mortgages, 2002-07
    • Table 38: Securitization split by banks and building societies/credit unions, 2002-07
    • Table 39: How did you arrange your financial product and how would you like to arrange your financial product?
    • Table 40: Forecasts of yearly lending commitments according to different scenarios, 2008-12
  • List of Figures
    • Figure 1: Credit aggregates in Australia have grown strongly since 1994, 1994-2008
    • Figure 2: Interest payments to disposable income has increased since 1993, 1993-2007
    • Figure 3: Some groups of mortgagors are more likely to be stressed than others
    • Figure 4: Attitudes towards home ownership and risk differ between age groups
    • Figure 5: Low deposit products have become common in the Australian mortgage market
    • Figure 6: ANZ has the highest proportion of satisfied mortgagors
    • Figure 7: Growth in lending commitments varies according to underlying assumptions, 2007-12
    • Figure 8: Credit aggregates in Australia have grown strongly since 1994, 1994-2008
    • Figure 9: Housing credit aggregates per Australian adult reached A$54,000 in 2007
    • Figure 10: Australian mortgagors have become much more leveraged, 1993-2007
    • Figure 11: The investor proportion of outstanding bank loans has increased, 1993-2007
    • Figure 12: In recent years the owner-occupier proportion of outstanding bank loans has increased slightly, 2002-07
    • Figure 13: Lending commitments have grown strongly since 1993, 1993-2007
    • Figure 14: Owner-occupier lending commitments have grown faster than investor lending commitments over the last five years, 2003-07
    • Figure 15: Investor proportion of monthly lending commitments has increased since 1993, 1993-2007
    • Figure 16: Refinancing as a proportion of monthly owner-occupier lending commitments has increased over the last 15 years, 1993-2007
    • Figure 17: First time buyers are making a comeback since the March 2004 low point, 1993-2007
    • Figure 18: Monthly lending commitments for construction have grown at a slower pace than lending for existing dwellings, 1993-2007
    • Figure 19: Lending for construction has fallen as a proportion of monthly lending commitments, 1993-2007
    • Figure 20: Monthly building approvals have not risen since 1993, 1993-2007
    • Figure 21: Average monthly sales prices of owner-occupier established dwellings have risen since 1993, 1993-2007
    • Figure 22: The quarterly property price index of established homes in the eight capital cities has started to accelerate since September 2005, 2003-07
    • Figure 23: Property prices have grown strongly in Perth, 2003-07
    • Figure 24: The cash rate target has been rising since 2001, 1993-2008
    • Figure 25: The fixed rate proportion of owner-occupier dwellings financed has increased since 2001, 1993-2007
    • Figure 26: Some groups of mortgagors are more likely to be stressed than others
    • Figure 27: Interest payments to disposable income has increased since 1993, 1993-2007
    • Figure 28: Non-mortgagors would find it hard to afford mortgage payments
    • Figure 29: Many mortgagors expect to refinance within a short time period
    • Figure 30: Owner-occupier proportion of private dwellings has been stable over the long term, 1966-2007
    • Figure 31: Attitudes towards home ownership and risk differ between age groups
    • Figure 32: Low deposit products have become common in the Australian mortgage market
    • Figure 33: Longer loan terms lead to higher total interest costs
    • Figure 34: Reducing fees is an important reason for bundling
    • Figure 35: Reverse mortgages are paid back with interest at the conclusion of the mortgage
    • Figure 36: Non-banks proportion of owner-occupier lending commitments has increased, 1993-2007
    • Figure 37: The value of outstanding securitized residential loans has skyrocketed, 1993-2007
    • Figure 38: Foreign banks have had success in the Australian mortgage market, 2002-07
    • Figure 39: Average interest margins have fallen since 1993, 1993-2007
    • Figure 40: Banks' discounted rates have lower margins than the standard rate, 2004-07
    • Figure 41: RAMS' share price has tumbled since the IPO in July 2007, 2007-08
    • Figure 42: Australian consumers have come to strongly prefer major domestic brands
    • Figure 43: CBA is the largest Australian lender with outstanding mortgages worth A$172 billion, Jan-08
    • Figure 44: CBA has captured the largest proportion of the growth in outstanding bank balances, 2007
    • Figure 45: Bank of Queensland grew its outstanding mortgage balances by 32% in 2007
    • Figure 46: The five largest banks account for around two thirds of outstanding mortgages, Jan-08
    • Figure 47: ANZ has the highest proportion of satisfied mortgagors
    • Figure 48: The proportion of mortgages attributable to credit unions and building societies has fallen, 2002-07
    • Figure 49: Securitization reached a peak in June 2007 and has fallen off since, 2002-07
    • Figure 50: More people would like to arrange financial products online than actually do
    • Figure 51: Under the Neutral scenario, yearly lending commitments are expected to reach A$349 billion by 2012, 1993-2012
    • Figure 52: Growth in lending commitments varies according to underlying assumptions, 2007-12