Tag: Mortgage Industry

Tracker mortgages ‘commercially unattractive’: ANZ chief

From The Advisor

ANZ CEO Shayne Elliott has explained how the group “looked hard” at launching tracker mortgages before it realised they would not be popular among borrowers.

In his opening statement to the House of Representatives economics standing committee in Canberra yesterday, Mr Elliott explained that the bank had taken action on a number of issues since it last met with the committee, including lowering credit card rates and potentially introducing rate ‘tracker’ mortgages.

“We looked hard at launching tracker mortgages, but our research showed that only 10 per cent of variable rate customers today would think about switching to a tracker. In part, that reflects price; we cannot fund that bank with tracker deposits, and this risk needs to be priced for,” he said.

“Launching trackers would therefore be commercially unattractive in our view and make us even more complex. That said, we will continue to assess demand.”

The committee tabled its first report of the major banks in November, where it labelled the big four an “oligopoly” and highlighted the “surprising” lack of regulation that has allowed the majors to harness significant pricing power in the residential mortgage market.

The report noted that the majors increased their oligopolistic powers after the GFC when they purchased a number of their smaller competitors.

The committee recommends that the ACCC, or the proposed Australian Council for Competition Policy, establish a small team to make recommendations to the treasurer every six months to improve competition in the banking sector.

Mr Elliott said ANZ is happy with this recommendation. However, in his opening statement he did stress that Australia’s banking industry is already “highly competitive”.

“We believe the market is already highly competitive and serving customers well. For example, small banks are growing their share of the market faster than large banks,” he said.

“Banking is a low margin business because of competition, and that is good for customers. For example, competitive discounts on mortgages mean we make only 67 cents for every $100 that we lend.”

The Property Market, By The Numbers

In our latest video blog we walk though some of the most important numbers in the mortgage and property market, including the latest findings from our household surveys.

Some of the questions we answer are:

  • How big is the mortgage market?
  • How many borrowing households are there?
  • What is the average mortgage size?
  • How many households are excluded from the market?
  • What will happen if mortgage rates rise by 3%?
  • Where is mortgage stress worst?
  • How does the Bank of Mum and Dad in Australia compare with the UK?

 

 

We see no room for complacency – APRA

Wayne Byres opening remarks to the Senate Economics Legislation Committee in Canberra includes comments on household debt and the mortgage industry. Further evidence this is now on the supervisory agenda following recent RBA comments.  Some might say, better late than never!

I will just start with a short statement of a few key issues currently on APRA’s plate.

Before I do, however, it’s important to note that Australia continues to benefit from a financial system that is fundamentally sound. That is not to say there are not challenges and problems to be addressed. However, as I’ve said elsewhere, to the extent we’re grappling with current issues and policy questions, they don’t reflect an impaired system that needs urgent remedial attention, but rather a desire to make the system stronger and more resilient while it is in good shape to do so.

The main policy item we have on our agenda in 2017 is the first recommendation of the Financial System Inquiry (FSI): that we should set capital standards so that the capital ratios of our deposit-takers are ‘unquestionably strong.’ We had held off taking action on this until the work by the Basel Committee on the international bank capital regime had been completed. But delays to the work in Basel mean we don’t think we should wait any longer.

Our goal in implementing the FSI’s recommendation is to enhance the capital framework for deposit-takers to achieve not only greater resilience, but also increased flexibility and transparency. And in doing all this, we will also be working to enable affected institutions to adjust to any policy changes in an orderly manner. If we achieve our goals, we will not only deliver improved safety and stability within the financial system, we will also aid other important considerations such as competition and efficiency.

We have many supervisory challenges at present, but there is no doubt that monitoring conditions in the Australian housing market remains high on our priority list. We have lifted our supervisory intensity in a number of ways, including reinforcing stronger lending standards and seeking in particular to moderate the rapid growth in lending to investors. These efforts have had the desired impact: we can be more confident in the conservatism of mortgage lending decisions today relative to a few years ago, and lending to investors was running at double digit rates of growth but has since come back into single figures.

However, strong competitive pressures are producing higher rates of lending growth again. This is occurring at a time when household debt levels are already high and household income growth is subdued. The cost of housing finance is also more likely to rise than fall. We therefore see no room for complacency, and mortgage lending will inevitably remain a very important issue for us for the foreseeable future.

The final issue I wanted to mention is our work on superannuation governance. This is an area where we remain keen to lift the bar. There are some excellent examples of good practice governance in the superannuation sector, but equally there are examples where we think more can be done to make sure members’ interests are paramount. Late last year, we finalised some changes to our prudential requirements to strengthen governance frameworks. The changes we implemented were relatively uncontroversial at the time, and have largely been included within the principles for sound governance that have subsequently been generated by the industry itself.

UK Confirms Loan To Income Mortgage Lending Rules

The Prudential Regulation Authority (PRA) has set out the final rules for the Loan to Income (LTI) flow limit to operate on a four-quarter rolling basis.

This applies to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA-designated investment firms, and overseas banks in relation to their UK branch activities and the UK subsidiaries of the above mentioned firms.

In June 2014 the Financial Policy Committee (FPC) issued a recommendation  to the PRA and the Financial Conduct Authority (FCA) advising that they should ‘ensure that mortgage lenders do not extend more than 15% of their total number of new residential mortgages at loan to income ratios at or greater than 4.5’.

The PRA proposed amending the PRA’s rules to change the current fixed quarterly limit into a four-quarter rolling limit. The limit would still need to be complied with and monitored at the end of every quarter, but the relevant flows of loans for compliance with the limit would now be those during a rolling period of four quarters in total, instead of one quarter as currently applied. These four quarters refer to the immediate quarter under consideration and the three quarters preceding it.

The PRA is now finalising the amendment to the Part proposed in CP44/16. The change is implemented with immediate effect, so that the loan to income (LTI) flow limit is applied on a four-quarter rolling basis from the current quarter onwards. This means that starting from Q1 2017 the PRA would monitor the LTI flow limit on a four-quarter rolling basis, which for Q1 2017 will be incorporating data on flows from Q2 2016, Q3 2016, Q4 2016 and Q1 2017. It is important to note that compliance under a fixed quarterly limit (which was the expectation before this change was introduced) automatically implies compliance with the limit under a four-quarter rolling basis.

Other lenders fill the gap as big four clamp down on foreign borrowers

From The Real Estate Conversation.

Though the big four banks have clamped down on lending to foreign nationals, other lenders have moved to fill the gap, and the share of properties bought by foreign nationals in the Australian market ticked higher at the end of 2016

Other lenders have moved to fill the gap, including developers themselves, but lending hurdles are higher across the board. Foreign nationals looking to obtain finance in Australia are often left disappointed in the current environment.

While the big four are not writing new loans for non-residents, some do still consider loans for temporary visa holders.

Lending criteria for foreign nationals varies across the big four.

Westpac is not writing new loans for non-residents.

The Commonwealth Bank doesn’t provide loans to non-residents. CBA has a maximum LVR of 70 per cent for selected temporary visa holders earning Australian income.

ANZ no longer lends to foreign nationals. Applicants must be permanent residents of Australia, NZ citizens, or 457 visa holders. Applicants are allowed to have a maximum of 30 per cent foreign income, with specific documentation required to verify it.

For National Australia Bank, a maximum LVR of 60 per cent applies for temporary visa holders living in Australia, and 70 per cent for Australia and New Zealand citizens and permanent residents living overseas. All foreign income is ‘shaded’ by 40 per cent when assessing serviceability.

HSBC and Citigroup are said to be filling the gap when finance isn’t available from the big four, according to some reports, but both banks did not reply to requests for information.

John Kolenda, Managing Director of 1300HomeLoan, told SCHWARTZWILLIAMS it is more challenging for foreigners to obtain housing finance in Australia than in the past, but it’s not impossible.

He said, “Some, mainly second-tier lenders, are still lending to foreign nationals. However, these applicants must meet strict credit criteria and maximum LVRs have been significantly reduced over the last 18 months, making obtaining a non-resident loan quite challenging.”

Kolenda said demand from foreign nationals for Aussie loans is as “strong as ever”, but doesn’t always get the borrower over the line.

“The problem is some applicants are simply unable to meet the lender’s credit criteria leaving many foreign nationals without the ability to obtain funds in Australia to purchase a property,” he said.

Though tighter lending restrictions at the big four banks has, to a certain degree, simply shifted demand to other lenders, Kolenda says those “other lenders” are also constrained in their lending.

“These lenders in many cases have increased interest rates, tightened credit criteria and reduced maximum LVRs on non-resident loans,” he said, adding, “many non-resident borrowers may find difficulty obtaining a loan from all lenders at the moment.”

According to NAB’s Residential Property Survey, foreign buyers increased their share of both new and established property markets in the final quarter of 2016, the first increase since late 2015.

The share of new property sales made by foreign nationals increased to 10.9 per cent during the December 2016 quarter. The rise follows four quarters of declining rates – no doubt an impact of the tighter lending rules. The recovery at the end of the year could indicate foreign nationals are finding finance elsewhere as alternatives to the major banks spring up.

In new property markets, foreign buyers were noticeably more prevalent in Victoria, where their market share of sales rose to 19.3 per cent, up from 15.0 per cent in the previous quarter.

The same trend was observed in the share of foreign buyers purchasing existing dwellings, which rose to 7.6 per cent in the fourth quarter of 2016, up from 6.4 per cent the previous quarter, and the highest result since the final quarter of 2015.

Fintechs Eye The Mortgage Market

From Fintech Business.

Speaking at a media roundtable in Sydney this week, SocietyOne co-founder Greg Symons said there is a class of mortgages that could suit “exactly what we do”.

“We will look at that in time, probably through a partnership of some kind,” Mr Symons said.

“The fact is it’s very cheap debt and very low capital that goes into it. The problem is the margins of play are very tight, whereas there is a second tier of mortgage lending with a lower LVR, a different form of mortgage lending that actually would fit well,” he explained.

“It is more like a syndicated loan style opportunity, which essentially is just low-volume peer-to-peer. The thing is, you’ve got to change your thinking. You’ve got to move away from this pooled investment style to something that is more individual based.”

Mr Symons said he built SocietyOne and the technology underpinning it to ensure that the company doesn’t exclude itself from certain asset classes that are a natural fit.

However, SocietyOne’s newly appointed chief investment officer John Cummins, who was also present at Wednesday’s discussion, said there is little “juice” in mortgages, echoing Mr Symons comment about tight margins.

The group has over 280 funders including Australian banks, credit unions, high net worth individuals and SMSFs.

Mr Cummins said mortgages are a difficult market to get high net worth investors into.

“The structures are really set up for institutional. To go in and nakedly invest in mortgages… I know it has been done overseas. It’s just a bit more challenging here because you have established an investment structure now that looks like an amortising structure with a whole lot of variable rate mortgages in it,” he said.

US-based online lender SoFi, which is planning an Australian mortgage market play, has successfully managed to move from a peer-to-peer lending offering student loans to a balance-sheet lender offering home loans.

The company has made clear its ambitions to grow beyond lending to provide a fuller, more holistic banking-like offering to customers including deposits, credit cards and payment solutions. It is currently preparing to launch its first mortgage securitisation deal.

SoFi this week announced the acquisition of Delaware-based mobile banking group Zenbanx, which has been pioneering ‘conversational banking’.

Bankwest refunds $4.9 million for overcharging interest on home loans

ASIC says Bankwest, a division of the Commonwealth Bank of Australia, has refunded approximately 10,800 customers more than $4.9 million after it failed to link offset accounts to home loan accounts for some customers who had open accounts between 2007 and June 2016, resulting in customers being overcharged interest.

Following media coverage of ASIC’s work in relation to similar breaches by another bank, Bankwest undertook an internal investigation into the operation of its offset accounts. Bankwest identified issues in the linking of offset accounts with home loans and reported the matter to ASIC as a significant breach of its licence obligations.

ASIC Deputy Chairman Peter Kell said, ‘It is critical that licensees ensure that their systems work properly so that promises made to customers about their bank accounts are kept.

‘When a problem is identified, licensees not only have an obligation to report the breach, but impacted customers must be returned to the position they would have been in, had the breach not occurred.’

Bankwest has since updated its systems and processes, including the automatic linking of new offset accounts.

Bankwest has contacted those customers it has identified as being affected to explain the impact and has arranged refunds.

Customers with queries or concerns about this matter should contact Bankwest Customer Help Centre on 1300 334 805 (for retail customers), or the Bankwest Business Support Centre 13 7000 (for business customers). Alternatively, customers can complete an online form here.

Background

An offset account is a savings or transaction account that, when linked to a home loan, offsets the balance of the loan account, reducing the interest payable.

For example, a customer with a home loan of $500,000 and a balance of $20,000 in their offset account, would only pay interest on $480,000. If accounts are not properly linked, the customer would be charged interest on the full loan amount of $500,000.

US fintech eyes Australian mortgage space

From Australian Broker.

US financial technology company SoFi has hinted at its plans to launch an Australian branch that offers mortgages and changes the banking world.

The firm, which is based in San Francisco, has recently put out a LinkedIn job advertisement for a manager of mortgage operations in Sydney. It is also looking to hire a marketing manager and an operations manager.

This would be the fintech’s first office outside of the US where it has funded more than US$7 billion in student loan refinancing, personal loans and mortgages, reported the Australian Financial Review.

The job ad says the new hire would preferably have non-bank lending experience and would “be responsible for building out an in-house mortgage customer service and underwriting operation to serve SoFi’s new mortgage business line”.

This will include developing the operations, processing and underwriting functions as well as supervising mortgage originations at or ahead of target.

SoFi recently raised US$1 billion of funding and has grown its staff from 150 to more than 600 over the past year. It offers a range of its own mortgage products which can be applied for directly via smartphone, reported The Economist in an article last year.

Borrowers – or ‘members’ as the fintech refers to them – are also showered with a range of other services. This includes being invited to parties to network, using SoFi’s offices for investor meetings and even tapping into the firm’s network to find employment.

When contacted by Australian Broker, a SoFi spokesperson declined to comment about the company’s future plans for Australia and its expansion into the local mortgage market.

Investment Mortgages, a 10-Year View

Continuing our series on the 10-year data from our household surveys, today we look at the investment mortgage portfolio. We find some interesting variations compared with the owner occupied borrowing segments, which we discussed recently.

In value terms, 28% of the portfolio is held by exclusive professionals, 15% to suburban mainstream, 14% mature stable families, 10% to young affluent, 9% to rural and 5% to young growing families.  19% of the portfolio was written in 2016.

In 2016, 23% of the loans were to the exclusive professional segment, 14% to young affluent, 11% to rural, 17% to mature stable families, 12% to suburban mainstream, and 5% to young growing families.  Young affluent households were more active last year, than across the entire portfolio.

In 2016, the average value of the mortgage to exclusive professionals for investment purposes was $982,360 compared with $536,193 for young affluent, $652,812 for mature stable families and $412,924 for young growing families.

The analysis shows the penetration of investment properties touches most segments, but is also shows a skew towards more affluent groups.

QBE Lifts LMI Fees

From Australian Broker.

QBE has announced an increase in the cost of lenders’ mortgage insurance (LMI) for property investors with the surcharge (or pricing loader) rising from 7% to 12%, reports the Australian Financial Review.

LMI for owner-occupiers will remain as is with the 8% first home buyer discount being extended to mortgages up to $1.2 million.

This is the first increase in three years, a QBE spokesperson said.

“Our experience shows first home buyers perform better than our average portfolio and we are pleased to continue to provide an 8% discount. The premium loading for investors has been increased to 12%, reflecting increased risk compared to lending to owner-occupiers.”

The minimum fee for QBE’s new and existing LMI products will also increase to $950.

Despite these changes, the firm will remain competitive, the spokesperson said.

A spokesperson from Genworth told AFR the firm had increased rates by 5% in the first half of 2016. The firm provides LMI for National Australia Bank, Commonwealth Bank of Australia and over 100 smaller lenders.