Credit crunch to force out non-bank lenders, mortgage brokers

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The global credit crunch and liquidity crisis has entrenched the dominance of Australia’s big four banks and left non-bank lenders and mortgage brokers battling just to stay afloat.

Figures from the Australian Bureau of Statistics show mortgagors have flocked to the banks in the past year, with non-bank lenders’ share of the market falling to 11 per cent in 2008, from 19 per cent in 2007.

The majority of those switching over have gone to the big four banks – ANZ Banking Group Ltd, Commonwealth Bank of Australia Ltd, National Australia Bank Ltd and Westpac Banking Corporation.

Their AA credit ratings and large deposit base allows them to access funding at lower rates than non-bank lenders and smaller, so-called second-tier banks.

Aussie Home Loans founder and executive chairman John Symond said many non-bank lenders and mortgage brokers were focused only on survival right now, given how difficult it was to secure funding.

And while Mr Symond expected some would not make it, he said there remained a place for mortgage brokers and non-bank lenders in the industry.

“The non-bank lenders who have been relying on securitisation are facing extinction,” Mr Symond said today.

“But the ones who do come out of this will be much stronger organisations, with better technology, better investments and they will be able to deliver consumers, I believe, a far better, more credible service.

“Whether it is in one year’s time or three year’s time, the markets will open up again.”

Mr Symond said that the departure of some mortgage brokers, squeezed by lowering commissions, would inevitably lead to job losses, adding that many experienced brokers had already come over to work at Aussie during the recent market turmoil.

Consolidation in the mortgage industry was not limited to non-bank lenders, with BankWest – a subsidiary of Halifax Bank of Scotland – swallowed up by Commonwealth Bank of Australia Ltd earlier this month.

Australian Bankers Association chief executive David Bell said there was still downward pressure on the cost of mortgages despite the global credit crunch.

“In terms of competition, it is our view that Australian consumers have access to very competitive banking markets that deliver good value to bank customers,” Mr Bell said in a statement today.

Mr Bell said bank interest rate margins had declined to 2.09 per cent in the first half of 2008, from 2.24 per cent 12 months earlier and close to four per cent in the mid-1990s.

“This is an important point to emphasise,” he said.

But Mortgage and Finance Association of Australia chief executive Phil Naylor said the decrease in competition was likely to lead to people paying more.

“That’s the problem at the moment where we’ve got less and less competition and that’s not good for borrowers,” Mr Naylor said.

“If you’ve got a situation of reduced competition, the likelihood is that margins will increase and that will manifest itself in interest rates being higher than would otherwise have been.

“We don’t want to wake up in two year’s time and find that all the lending is in a couple of institutions and there is no competition in the market at all.”

AAP

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