Tag: Mortgage Industry

Bank Mortgage Lending Falls

The latest data from APRA, the monthly banking stats to August 2017 shows the first overall fall in the value of mortgage loans held by the banks, for some time, so the macroprudential intervention can be said to be working – finally – perhaps! Or it could be more about the continued loan reclassification?

Overall the value of mortgage portfolio fell 0.11% to $1.57 trillion. Within that owner occupied lending rose 0.1% to $1.02 trillion while investment lending fell 0.54% to $550 billion. As a result, the proportion of loans for investment purposes fell to 34.93%.

This explains all the discounts and special offers we have been tracking in the past few weeks, as banks become more desperate to grow their books in a falling market.

Here are the monthly growth trends.

Portfolio movements across the banks were quite marked. There may be further switches, but we wont know until the RBA data comes out, and then only at an aggregate level. We suspect CBA did some switching…

The loan shares still show Westpac the largest lender on investor mortgages and CBA leading the pack on owner occupied loans.

All the majors are below the 10% investor loan speed limit.

So the question will be, have the non-bank sector picked up the slack? In fact the RBA says $1.7 billion of loans were switched in the month. This probably explains only some of the net fall.

 

Borrowers in the dark over rising rates

From The Advisor.

A mortgage market analyst has said that he is “astonished” that banks don’t tell borrowers how much their repayments will be if rates were to rise.

More than half of borrowers have no clue what impact a 2 per cent rate rise will have on their home loan, according to Digital Finance Analytics principal Martin North.

“One of the things I’m amazed about is lenders don’t actually tell people what their repayments will be if rates were to rise by 2 or 3 per cent — in other words, back to normal levels,” Mr North told The Adviser.

“They do the calculations because of serviceability buffers, but that is not disclosed to consumers,” the principal said, adding that borrowers have very little “feel” of how their mortgages will behave in a rising interest rate environment.

“My research suggests that only half of them have a budget and know what they are spending. If you ask them what the effect of a 2 per cent rate rise will be on their mortgage, more than half have no idea.”

Mr North’s comments come amid growing speculation that the Reserve Bank will begin lifting the cash rate from next year. High levels of household debt are a chief concern for the RBA as it looks to tighten monetary policy.

Last week, Reserve Bank governor Philip Lowe warned that in the current environment, “household spending could be quite sensitive to increases in interest rates”.

DFA’s Martin North explained that on a $100,000 mortgage, a 25 basis point rate rise equates to about $30 more a month on mortgage repayments.

“On a million-dollar mortgage, you can see that even a small interest rate rise is a huge cash cost each month.”

His comments come as new figures show that a concerning number of property investors are unaware of how they will be effected by lending changes.

The 2017 PIPA Annual Investor Sentiment Survey, released this week, found evidence of mortgage stress among investors moving from interest-only (IO) to principal and interest (P&I) mortgages.

PIPA chair Ben Kingsley said that there are a few worrying figures that reflect a level of uncertainty among investors when it comes to finance.

“We did see some evidence of lending fatigue in terms of investors that have been forced to stop borrowing,” Mr Kingsley told The Adviser.

While the majority of investors with interest-only (IO) loans said that they won’t struggle to meet the new principal and interest (P&I) repayments once their current IO period expired, 12 per cent said that they would.

“I was a little bit worried that 12 per cent said if their loans switched to P&I they would struggle,” Mr Kingsley said.

“What was even more interesting to me was that 20 per cent were unsure. I would like to think that many investors should know what is important to them.”

Mortgage Customer Satisfaction – Go Small!

The latest data shows that customers of the smaller mortgage lenders are significantly more likely to be satisfied than those using the big four.  And overall the smaller players are hitting the high note in terms of service compared with their larger competitors, with mortgages leading the way.

According to Roy Morgan Research, customer satisfaction with Bendigo Bank in August 2017 was 89.3%, making it the top performer among the ten largest consumer banks. Not only was Bendigo the satisfaction leader but it improved it’s rating over the month by 0.9% points, against an overall decline of 0.2% points for banks in total.

Smaller banks lead in customer satisfaction

Not only does Bendigo Bank lead in customer satisfaction among the major ten banks with 89.3% but it was followed by other small banks such as ING Direct with 86.7%, Bank of Queensland (84.2%), Suncorp (83.0%) and St George (82.0%). The best performer among the four majors was the CBA with 80.2%, followed by Westpac on 78.5%, NAB (78.4%) and ANZ (77.3%). The overall average satisfaction for all banks was 80.8% in August.

Consumer Banking Satisfaction August 2017 - 10 Largest Consumer Banks1 
1. Based on customer numbers 2. Include banks not shown Source: Roy Morgan Single Source (Australia). 6 months ended July 2017, n= 26,184; 6 months ended August 2017, n= 26,119. Base: Australians 14+

Over the last month the major banks to show improved satisfaction were Bendigo Bank (up 0.9% points), Bank of Queensland (up 0.7% points), Suncorp (up 0.5% points), Westpac (up 0.4% points) and NAB (up 0.1% point). The biggest drop in satisfaction was by ING Direct (down 1.2% points) but they remained in clear second place overall.

Low satisfaction among mortgage customers of the big four banks reduce their overall satisfaction

The mortgage customers of each of the big four banks continue to be a drag on their overall satisfaction, despite historically low home-loan rates. Over the last month, satisfaction among the big four’s home-loan customers has fallen marginally further behind their other customers with a decline of 0.4% points to 75.7%, compared to a drop of only 0.1% points for non home-loan customers (to 79.8%).

Satisfaction of Mortgage and Non-Mortgage Customers August 2017 - 10 Largest Consumer Banks1
1. Based on customer numbers Source: Roy Morgan Single Source (Australia). 6 months ended July 2017, n= 26,184; 6 months ended August 2017, n= 26,119. Base: Australians 14+

Bendigo Bank has the highest home-loan customer satisfaction (of the top 10) with 96.3%, followed by Bank of Queensland with 93.6%. These two remain well ahead of their major competitors, with the next best being ING Direct (86.8%). The CBA has the highest home-loan customer satisfaction of the big four with 77.4% (down 0.7% points over the last month), followed by NAB on 75.4% (up 1.6% points).

CBA introduces new IO ‘simulator’

From Australian Broker.

The Commonwealth Bank of Australia (CBA) has announced a compulsory new digital tool, the Interest Only Simulator, which will be incorporated into its third party lending process.

The simulator will be accessible through CommBroker and will show customers the differences between IO and P&I repayments as well as the financial impacts over the life of the loan for both types of loans. It will be mandatory from 6 October for all customers applying for a new interest only loan.

“The new tool will make it easier for our brokers to have conversations with customers about their needs and their loan options. It will also help ensure customers understand what type of loan is best for them and their situation,” a CBA spokesperson told Australian Broker.

A compulsory Customer Acknowledgement Form will also be included in the simulator. This will be submitted with all interest only home loan applications to ensure that those payments meet the client’s needs.

Brokers are required to provide customers with a copy of this form as a record of the discussion. This can be done electronically as a pdf attachment via email.

“We encourage our customers to choose principal and interest repayments to help them build equity in their home, where this meets their needs and objectives. Customers who currently make interest only payments are encouraged, where they are able, to switch to principal and interest repayments,” the spokesperson said.

Genworth Gets NAB’s LMI Contract Extended

In a release to the ASX, Genworth, the listed Lenders Mortgage Insurer said that its contract with NAB to provide LMI had been extended for one year to 20th November 2018.

The contract represented 10% of Gross Written Premium in 2016.

Ms Georgette Nicholas, Chief Executive Officer and Managing Director of Genworth, said, “We look forward to continuing to build on our long-standing partnership with NAB under this extended agreement. We are focused on delivering risk and capital management solutions for our customers and we’re delighted that we have been able to continue to be the LMI provider for NAB’s broker business.

“Genworth remains committed to supporting Australians realise their dream of homeownership. Our focus continues to be on the provision of capital and risk management solutions to our lender customers, being a strong risk management partner and using our data and analytics to provide in sights to this changing market.”

The extended contract does not change the guidance provided that Gross Written Premium (GWP) will be down 10 to 15 per cent in 2017.

HashChing Launches New GroupBuy Solution

Two years after launching its online mortgage broking platform, HashChing says it is shaking up the home loans industry once again with a new GroupBuy solution. They claim the potential savings are huge by flipping the usual power dynamic of a bank and borrower. Customers join a group with similar lending requirements (such as refinancing an existing home loan), and participating banks and lenders bid against each other to win that group’s combined home loan portfolio.

With Australians paying an average 4.55 per cent discounted variable rate on owner-occupied properties, HashChing CEO Mandeep Sodhi said customers could stand to save at least $80,000 off their mortgages by refinancing through GroupBuy.

“We expect lenders to match or beat the interest rates that are currently being offered through HashChing partner mortgage brokers, which currently start from 3.59 per cent. Based on an average loan size of $500,000, borrowers can stand to save a significant amount of money.

“HashChing GroupBuy is a revolutionary and exciting new way for borrowers to tap into the collective bargaining power of a group, enabling them to get a better interest rate on their existing home loan using an online wizard that takes less than 10 minutes to complete, provided you have your paperwork ready. “For less than 10 minutes of your time, you could potentially save $80,000 over the life of your home loan,” said Mandeep Sodhi, CEO of HashChing. Jobs NSW, a government backed initiative that aims to make the NSW economy as competitive as possible, has recognised the innovation behind GroupBuy with a $100,000 funding grant.

GroupBuy is free and simple to use. Borrowers sign up through the dedicated GroupBuy portal on the HashChing website and confirm their interest in a particular campaign. Campaigns group borrowers with similar loan requirements together.

Campaigns will have strict eligibility criteria, such as refinance of owner-occupied properties only with a minimum borrowing of $500,000 per applicant and a minimum credit score.

Once each campaign is full, HashChing’s panel of lenders bid for the group of loans, giving the borrowers access to a range of low and below market offers. Borrowers are able to select the most appealing loan offer, and the chosen lender then gets in touch with each borrower separately to finalise the home loan.

Borrowers who drop out of the campaign at any point will be connected with a local partner broker, who can provide them with a personalised service for negotiating a better home loan rate at no cost.

HashChing will also use key learnings from the rollout of GroupBuy to create a deeper understanding of customer usage patterns – the end goal being to connect customers with brokers at the precise moment they need assistance, with enough information captured for broker to have a meaningful conversation. HashChing will initially conduct a GroupBuy Pilot for six weeks with four lender partners – Gateway Credit Union, Pepper Money, Switzer and MortgageEzy – and offer campaigns to consumers looking to refinance their home. Upon completion of the pilot HashChing will increase the participating lenders and consumer campaigns.

Gateway CEO, Paul Thomas, highlighted the synergy between the two organisations as a key driver for the partnership. “Partnering with fintechs such as HashChing is all about helping to create a more dynamic, innovative and competitive industry. Taking part in this group buying initiative is exciting because it allows us to help pioneer a unique customer experience. It’s the perfect way for us to further strengthen our commitment to fintech partnerships and differentiate from the big banks, while showcasing our benefits as a customer owned bank that always looks to empower the customer,” said Mr Thomas.

Aaron Milburn, Pepper Money’s director of sales & distribution, said: “Pepper Money is always looking for ways to maximise a customer’s access to finance. That’s why we partner with a variety of introducers, such as HashChing, who are using innovative methods like GroupBuy to increase a customer’s finance options.”

Peter James, CEO of Mortgage Ezy, said: “Mortgage Ezy is thrilled to partner with HashChing as a strong advocate for brokers. As one of the last truly independent non-banks in Australia, we relish the opportunity to continue to give the banks a run for their money.”

Marty Switzer, CEO of Switzer GroupBuy, said: “Mortgage stress is a stark reality for one in four mortgaged households, and there’s a strong likelihood of rates rising even further. A simple increase of half a per cent would boost the number of mortgage stressed households to a whopping one in three. As an industry, we need to be looking at ways we can relieve the financial pressure on over-stretched households. HashChing has taken this challenge by the horns with its innovative GroupBuy product, and I’m excited to be a part of it.

Since launching in August 2015, HashChing has received more than $10 billion worth of home loan applications, helped upwards of 18,000 customers find a better deal on their home loan, and boasts an expansive network of more than 600 verified brokers. “We are very pleased to be working with a dedicated group of lenders given the current discontent consumers feel towards the major lenders, especially during continual periods of out of cycle rate changes,” said Mr Sodhi. “For too long now, mortgage borrowers have felt powerless against the big four banks and other major financial institutions, who continue to hike up interest rates against a climate of high household debt and stagnate wage growth.

“HashChing GroupBuy puts the power back in their hands by having banks and lenders come to them and try to win their business. We believe this will be an incredibly satisfying and empowering experience, and we’re looking forward to making this publicly available in the near future.

Majors Assert Their Mortgage Origination Strength

The latest edition of the AFG Competition Index, to August 2017 shows that after some weak results, the majors are back in force. So much for macroprudential! Of course this may be myopic, as it looks at deal flow through the AFG prism, but we suspect not.

In a sign of renewed commitment to the broker channel, major lenders have taken back control from the non majors with a lift in market share across the last month according to the latest AFG Competition Index.

“After a low of 63.39% in June 2017, the majors have risen each month to round out the quarter at 65.90%,” said AFG General Manager of Residential and Broker Mark Hewitt.

“Fixed rate products have recorded the largest increase with the majors now claiming 74.8% share in this category. ANZ is taking the lion’s share of fixed rate business jumpingfrom 10.51% in June to 20.82% by the end of the quarter,” he said. This rise has largely been at the expense of Westpac, which recorded a drop of more than 7% over the same period.

“Westpac also fell back in the Investor category, dropping from 16.92% in June to 12.91% at the end of August. ANZ have also taken the lead in this category, with a lift from 13.22% to 19.99% over the quarter.

“ANZ is also appealing to those seeking to refinance,” he said. “Their market share amongst refinancers has jumped from 15.22% to 18.5% across the quarter.

Amongst the other major lenders, CBA rebounded from 12.45% total share at the start the start of the quarter to finish on 14.25%.

In the non-major category, AFG Home Loans finished the quarter with a market share of 8.85% as a result of share gains in refinancing, investor and first home buyer categories.

Suncorp also proved competitive over the quarter averaging almost 5% total market share.

“AFG also welcomes Credit Union Australia (CUA) and Homeloans Limited to our panel and we look forward to introducing these lenders to our brokers”.

“The presence of these additional leading non-major lenders provide increased choice for consumers looking for finance,” he said.

Heritage Bank Halts Investment Lending

Heritage Bank has said it has temporarily stopped accepting new applications for investment home loans, to ensure they comply with regulatory limitations on growth.

Heritage has experienced a sharp increase in the proportion of investment lending in our new approvals recently.

That’s an outcome both of our attractive pricing structure and the actions other lenders in the investor market have taken to slow their growth.

We need to manage our investment lending portfolio carefully, to ensure we stay within the caps APRA has placed on growth in investor and interest only lending.

As a result, we’ve taken the decision to temporarily stop accepting applications for new investor lending, effective from Friday (1 September).

We will monitor our approvals and loan portfolio in coming weeks and review that decision as needed.

They also announced a tiered pricing structure, based on LVR bands for some products, reflecting the risks involved.

Heritage Bank is Australia’s largest customer-owned bank. In 1981 Toowoomba Permanent Building Society (est. 1875) and the Darling Downs Building Society (est. 1897) merged and became Heritage Building Society. In December 2011, Heritage Building Society officially changed its name to Heritage Bank to remain relevant and competitive.

AFG successfully completes $350 million RMBS issue

Australian Finance Group has today priced its AFG 2017-1 Trust Residential Mortgage Backed Securities (RMBS) issue.

AFG Chief Executive Officer David Bailey said this latest transaction is the largest term deal AFG has undertaken.

“The securitisation program is an important contributor to the company’s overall growth strategy.   We are delighted to see the success of this issue further validate the AFG Securities business model.

”A very positive aspect of this transaction was the increase in the number of returning investors, as well as the increased number of new investors to our programme.

Mr Bailey said the success of the transaction reinforces the importance of the securitisation sector to the Australian lending market.  “A vibrant and strong RMBS market is vital to ensure a greater level of competition and choice in the Australian mortgage market.

“By being able to source competitively priced funding from a variety of investors we can in turn provide competitively priced products to Australian consumers.

He noted the success of today’s issue reflects the confidence of investors in the high quality lending standards that AFG Securities apply.  “The performance of our portfolio continues to be very strong and investors are recognising the unique position AFG holds in the residential mortgage market.  These standards have underpinned the success of our latest transaction.

“As I have said before, the performance of every mortgage starts and ends with the credit policies and appetite of the lender.  Our AFG Securities programme has robust underwriting and risk protocols and this is reflected in the performance of our book.

The transaction will settle on 7th September 2017.

Prior transactions include a $300m RMBS issuance in 2016, a $300 million issue in 2014 and a further two issues in 2013 of $245m and $300m.

The AFG 2017-1 Trust RMBS was successfully arranged by Australia and New Zealand Banking Group Limited (ANZ).  Joint Lead Managers were National Australia Bank Limited and ANZ.

Detail relating to the A$350m AFG 2017-1 Trust RMBS transaction is as follows:

AFG is a diversified lending services company and one of the country’s largest mortgage broking groups. Through a network of 2,875 contracted mortgage brokers, AFG processes around $4.5 billion of finance every month and has a combined residential and commercial loan book of $133 billion.

Is The Mortgage Tide Receding?

APRA has released their monthly banking stats to July 2017. We see a significant slowing in the momentum of mortgage lending.  This data relates to the banks only. Their mortgage portfolio grew by 0.4% in the month to $1.58 trillion, the slowest rate for several month. This, on an annualised basis would still be twice the rate of inflation. Investment loans now comprise 35.08% of the portfolio, down a little, but still a significant market segment.

Owner occupied loans grew 0.5% to $1.02 trillion while investment loans grew just 0.085% to $552.7 billion. This is the slowest growth in investment loans for several years. So the brakes are being applied in response to the regulators.

Looking at the individual lenders, the portfolio movements are striking. CBA has dialed back investor loans, along with ANZ, while Westpac and NAB grew their portfolios. Westpac clearly is still writing significant business, but they expect to be within the interest only limit to meet the regulatory guidance.

The overall market shares have only slightly changed, with CBA the largest OO lender, and WBC the largest investor lender.

Looking at the 12m rolling growth, the market is now at around 4%, and all the majors are well below the 10% speed limit. Some smaller players are still speeding!

We will see what the RBA credit aggregates tell us about adjustment between owner occupied and investor lending, as well as non-bank participation. But it does look like the mortgage tide is going out. This could have a profound impact on the housing market.  It also shows how long it takes to turn a slow lumbering system around.