Archive for the ‘General’ Category

Leading industry analysts have predicted third party brokers could claim up to 60% of the mortgage origination market within five years.

Speaking at the LIXI 2010 conference in Sydney, Fujitsu Consulting general manager Martin North, Mortgage Industry Analyst Tony Crossley and NextGen.Net sales director Michael Murphy all predicted imminent improvements in broker market power.

The JP Morgan/Fujitsu Australian Mortgage Industry Report report released in September measured broker market share at just under 40%. However, North thinks the next five years will see major bank market share dominance sink, while brokers will rise.

“I think we will see 60 per cent [of housing loans] funded by the majors, so that’s 40 per cent from elsewhere,” North said. “I think that mortgage brokers will have well north of 40 per cent of the market – it could be close to 50 per cent – because if you look at the consumer research, they are doing the right thing by consumers, and with the new regulatory environment in place that will only improve.”

Murphy from NextGen.Net agreed major banks would shrink to 60% of the market, and that third party market share could reach 60%.

“Any shift in funding away from the four majors would almost automatically imply through brokers or an alliance channel – there’s a fairly strict correlation between those two – so if you accept the premise [that major banks will fund only 60% of the market within five years] it wouldn’t surprise me if mortgage brokers increased up to 60%.

“I think there is every chance, because I do think over time there will be a levelling out on the revenue and the cost side of that relationship, so it will become a more palatable and more supported relationship over time – I really believe that.”

Crossley was more muted in his predictions. “It’s been essentially flat for some significant period, and it will require a different market for that to take off to the levels we’ve seen overseas, and I’m not sure it will get that far.”

However, he acknowledged the role brokers will play in increasing market competition with the four majors. “A lot of the rhetoric underestimates the impact of the broker – they do actually promote competition from their little office,” he said. ”They will draw out price comparisons and product comparisons, so it’s actually a very effective way of generating a market.”

The population of Australia has increased by just under a tenth between 2004 and 2009, according to new statistics.

The Australian Bureau of Statistics (ABS) has revealed that the estimated resident population in Australia at the end of June 2009 was 21.96 million – an increase of 1.83 million since June 2004. That equals a total population growth of 9.1%, and a yearly average of 1.8%. Should population growth continue at this rate, Australia would have a total population of 23.93 million in 2014 and 26 million by 2019.

The ABS figures also revealed that just under one-third of the country’s population lived in NSW as of last June, with the Northern Territory and ACT containing the fewest people. In terms of population growth, Queensland saw both the largest and fastest growth. There were also around 92,000 more women than men in Australia last June.

Continuing RBA monetary policy tightening in the first and second quarters of 2010 has impacted arrears performance

The RBA increased the cash rate target by 25 basis points during March with two further consecutive rises of 25 basis points each during April and May. This has taken the cash rate to a current rate of 4.5 per cent from a low of 3.0 per cent between April and early October 2009.

Fitch Ratings has seen arrears performance during Q1 2010 start to  deteriorate on the back of the rising cash rate, which has flowed through to home loan lenders’ lending rates.

Fitch’s Dinkum Index, which tracks arrears across all Fitch rated residential mortgage backed securities (RMBS), has seen an increase in its prime index during the first quarter with 30+ day arrears increasing from 1.19 per cent to 1.38 percent.

The increase was mainly attributable to 30-59 day delinquencies which rose from 0.52 per cent to 0.65 per cent with almost no change in the 90+ day arrears, which remained at 0.49 per cent.

All low doc loans evidenced an increase in the 30+ day delinquencies, which jumped from 4.82 per cent to 5.53 per cent; most of this increase was attributable to the 90+ delinquencies which rose 0.31 per cent to 2.67 per cent.

The deterioration in later stage arrears for low doc loans could be explained by Christmas credit spending rolling over into the New Year and successive rate rises in the last quarter of 2009.

Non-conforming low doc loan arrears remain persistently high with 30+ day arrears increasing from 16.5 per cent at Q409 to 17.7 per cent at Q1 10, while conforming low doc arrears also rose, but at much lower levels, from 2.8 per cent at Q409 to 3.6 per cent at Q1 10.

The RBA have held rates steady at 4.50 per cent since May 2010, after 6 rate increases since October 2009.

With decreasing unemployment, and a strengthening economy, the RBA is expected to increase rates further during 2010, putting continued upward pressure on borrower’s ability to service debt.

Fitch anticipates an increase in arrears for both conforming and low doc borrowers during the remainder of 2010 as compounding interest rate rises impact borrowers and flow through to rises in Fitch’s Dinkum Indexes.

David Carrol, Director Fitch Ratings

Despite the RBA’s decision to keep rates on hold last month, 50 per cent of consumers are already sacrificing a range of everyday necessities to accommodate higher interest rates.

According to the latest Bankwest/MFAA Home Finance Index, 50 per cent of Australians are forgoing eating out to deal with the burden of higher rates, while 47 per cent are reducing costs at home or taking lunch to work and 42 per cent are going on cheaper holidays or not taking a break at all.

The Index found the number of borrowers feeling ‘worse off’ than 12 months ago has been steadily increasing since November 2009.

Those who are most concerned and affected by the state of the economy are the over 60s, unemployed, low income earners, students and those involved in home duties.

“With interest rates higher than last year, many mortgage holders seem to be holding back on their spending.  Home buyers are opting for practical strategies such as packed lunches, shopping during the sales, and buying in bulk to balance their household budgets. There is a clear move to more thrifty spending for many Australian households,” Bankwest retail chief executive Vittoria Shortt said.

Interest rates are unlikely to change until November at the earliest, according to RP Data.

Tim Lawless, senior research analyst at RP Data, said that an extended period of interest rate stability is in store.

“All the fundamentals apart from inflation are looking subdued,” he said. “There may be some increase in consumer goods over the next few months, which could spur the RBA to act after the next CPI data is released in October. However, that means there’s very little chance of an increase before the Monetary Policy Board’s November meeting.”

This will provide some welcome certainty to the housing market, Lawless added, particularly for owner-occupiers.

“The renewed certainty over rates may even translate to a small bounce in first homebuyers,” he said. “However, price growth is still likely to be relatively flat for the next six months at least, and we’re likely to see the balance of the market swing back towards buyers.”

Mortgage Choice spokesperson Kristy Sheppard agreed an extended period of rate stability would be good news for borrowers.

“This will be a great relief for anyone repaying a variable interest loan or approaching the end

of their fixed-rate term, just as it will be for those who are looking forward to jumping into the market during spring. A rate rise would

surely have discouraged many people from acting on their property plans, be that selling up or purchasing. Now there is another reason to move ahead with confidence.”