Something weird is happening to the mortgage market judging by the bevy of messages I have received in the past few days. Lenders, including those from the big 4 who have made a provisional commitment loan for a property transaction have pulled the pin before the final commitments are made.
In some cases, the loan is now being priced higher than indicated despite the rate cuts) , in other cases they just said no.
At least two DFA followers have been left high and try, and are trying to source alternative finance at short notice.
May just be a glitch, or this could be something more significant given the rising funding costs we are seeing in reaction to the global market uncertainties. A sign perhaps the mortgage market is freezing up?
For those with a property transaction in train, it is worth checking the small print if you have a mortgage ready to go – be sure it is fully unconditional, else you may be caught short!
And if you have experience this recently, let me know. This is something I need to monitor.
Sharp fixed and variable rate home loan reductions are set to trigger a spike in refinancing applications through the broker channel, according to Aussie CEO James Symond. Via The Adviser.
Last week, the Reserve Bank of Australia (RBA) lowered the official cash rate by 25 bps from 0.75 per cent to 0.5 per cent – marking the fourth cut since June 2019 when the easing cycle commenced.
This followed a sharp turnaround in
sentiment ahead of the RBA’s monetary policy board meeting, with
analysts initially expecting the central bank to keep rates on hold.
Developments in the domestic and global
economy are likely to have altered the RBA’s tone, with weak local
market indicators and the coronavirus (COVID-19) outbreak rattling
market confidence.
A host of lenders, including the big four banks announced variable home loan rate reductions in response to the cut.
Bendigo and Adelaide Bank is the latest
lender to announce variable rate reductions, passing on the full 25 bps
to new and existing customers, effective 27 March.
Bendigo Bank has also cut small business and overdraft variable rates by the full 25 bps, also effective 27 March.
“In an environment experiencing
historically low rates, we have carefully evaluated our responsibility
to borrowers and communities with the impact lower rates have on
depositors, our business performance and all other stakeholders,”
Bendigo Bank’s managing director, Marnie Baker said.
“At the same time, many customer and
communities are facing a long recovery from bushfires and drought and
coupled with the still largely unknown economic impacts from COVID-19,
this decision aims to further support our home loan and business
customers and our many communities nationwide.”
Adelaide Bank’s head of third-party
banking, Darren Kasehagen, added: “These changes will have a direct and
positive impact [on] what is a most uncertain time for our home loan
customers.”
“The decision allows customers to take advantage of the lowest variable home loan rates that have been available for some time.
“As always, we carefully considered the
impact on all stakeholders and the overall cost of funding in arriving
at this decision.”
Macquarie Bank and ING, which were among
the lenders to drop variable rates by the full 25 bps, have also
announced sharp reductions to their fixed rate home loans.
Macquarie has dropped two and three-year
fixed rates to as low as 2.64 per cent for owner-occupied borrowers
paying principal and interest (P&I) and with a loan-to-value ratio
(LVR) of less than 70 per cent.
Owner-occupied P&I rates have also
been reduced to 2.74 per cent for four and five-year fixed rates for
borrowers with an LVR of less than 70 per cent.
Meanwhile, ING has slashed its fixed rates
to as low as 2.49 per cent for owner-occupied P&I borrowers with
the Orange Advantage product (3.89 per cent comparison rate).
ING’s investor fixed rates have dropped to as low as 2.74 per cent (4.44 per cent comparison rate).
In light of record-low mortgage rates,
Aussie Home Loans CEO Mr Symond has called on borrowers to consider
refinancing to save on their repayments.
“I expect many fixed and variable mortgage rates will fall below 3 per cent over the next month,” he said.
“Borrowers should be exploring the market for competitive rates and speaking with a reputable mortgage broker.
“A decision to see a mortgage broker could
save borrowers thousands of dollars and years off their repayments over
the life of the mortgage.”
Mr Symond added that he is expecting
refinance rates to spike beyond 30 per cent of new flows – as currently
experienced by Aussie’s broker network.
“Now is a great time to refinance and
exploit the strong competition amongst lenders, but borrowers need to
get sound, well-researched advice from a credible broker or lender
before taking this step,” he concluded.
APRA released their monthly stats showing total reported balances for each bank to the end of January 2020.
Total balances grew by 0.26%, to $1.75 trillion dollars, with loans for owner occupation up 0.38%, to $1.1 trillion dollars and investment loans up 0.04% to $0.64 trillion dollars. Investment loans made up 36.9% of the portfolio.
These are net balances, after repayments and new loans, and refinancing between banks.
The individual movements between banks shows that CBA and Macquarie Bank are leading the growth, while NAB, and Westpac dropped investment loan balances, ANZ dropped both types, while Suncorp accelerated their investment lending. Macquarie still leads in investment lending however.
This suggests ongoing weakness in credit growth – and we will examine the RBA data shortly, also out today. But clearly individual lenders are executing different strategies, and the portfolio changes highlight the net impact.
ASIC has today started a four week consultation on draft guidance about the new best interests duty for mortgage brokers.
The new obligations were legislated by the Parliament in response to Recommendation 1.2 of the Royal Commission.
From 1 July, the obligations will require mortgage brokers to act in
the best interests of consumers and to prioritise consumers’ interests
when providing credit assistance.
Announcing the
consultation, ASIC Commissioner Sean Hughes said, ‘The obligations
properly align the interests of mortgage brokers with the interests and
expectations of their clients – the borrowers. Consumers should feel
confident that their broker is offering the best loan for their
circumstances and we expect that consumer outcomes will improve as a
result of this reform.’
‘We have released this
draft guidance for consultation as early as possible, to help promote
certainty for mortgage brokers as industry prepares for the new
obligations to commence in July’ Mr Hughes added.
ASIC’s proposed approach to the guidance is outlined in Consultation Paper 327 Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
(CP 327). Consistent with the legislation, the draft guidance is
high-level and principles-based, but also incorporates practical
examples. The purpose of the guidance is to explain the obligations
introduced by the Government, it does not prescribe conduct or impose
additional obligations.
The draft guidance is
structured around the key steps common to the credit assistance process
of brokers, such as gathering information, considering the product
options available and presenting options and a recommendation to the
consumer.
ASIC welcomes views from
all interested stakeholders on the proposals in CP 327, as well as the
draft guidance. This will allow ASIC to understand how the guidance can
best assist brokers to meet these new legal obligations. ASIC expects
that the new obligations will also improve competition in the home
lending market.
ASIC seeks public comment on the draft guidance by 20 March 2020.
ASIC intends to publish final guidance before the obligations commence on 1 July 2020.
Download
Consultation Paper 327: Implementing the Royal Commission recommendations: Mortgage brokers and the best interests duty
Background
In February 2019, Parliament passed the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures) Act 2020,
which introduces a best interests duty for mortgage brokers in response
to Recommendation 1.2 of the Royal Commission. The duty is a statement
of principle which seeks to align the interests of the mortgage broker
with the interests and expectations of the consumer.
ASIC’s proposed guidance
will assist mortgage brokers to comply with these new legal obligations
by setting out ASIC’s views on what the best interests duty provisions
require and steps that can minimise the risk of non-compliance.
The best interests duty
introduced by the Government applies in addition to the responsible
lending obligations. ASIC’s draft guidance explains the interaction of
these two obligations, including that information gathered for the
purpose of complying with the responsible lending obligations may help
brokers to comply with the best interests duty.
ASIC’s draft guidance follows research we published last year in Report 628Looking for a mortgage: Consumer experiences and expectations in getting a home loan. Key findings from this research included:
consumers who visit a mortgage broker expect the broker to find them the ‘best’ home loan;
mortgage brokers were inconsistent in the
ways they presented home loan options to consumers, sometimes offering
little (if any) explanation of the options considered or reasons for
their recommendation; and
first home buyers were more likely to take out their loan with a mortgage broker.
AFG and Connective are mortgage aggregators that act as intermediaries between lenders and their affiliated brokers.
“Combining AFG and Connective would create
the largest mortgage aggregator in Australia by a significant margin,
accounting for almost 40 per cent of all mortgage brokers operating in
Australia,” ACCC Chair Rod Sims said.
More than half of all home loans written
each year are initiated through the broker channel, and brokers play an
important role for consumers when seeking a home loan and for lenders in
reaching those consumers.
“AFG and Connective operate in an already
concentrated market, and not many other mortgage aggregators offer a
similar level or type of service. Additionally, potential entrants or
small players may be deterred from expanding by various barriers,
including compliance costs,” Mr Sims said.
“The ACCC is concerned there will be
limited similar alternatives for brokers to switch to. This may
negatively impact the services offered to brokers.”
The ACCC has published a statement of
issues and is seeking further information about the supply of mortgage
aggregation and distribution services, and the supply of home loans in
Australia. The ACCC invites further submissions from interested parties
in by 5 March 2020. The final decision will be announced on 7 May 2020.
AFG and Connective provide brokers with
access to a panel of lenders, and provide panel lenders access to
affiliated brokers to distribute loans. Generally, a broker will be
affiliated with one mortgage aggregator at a time, while lenders tend to
sit on a number of mortgage aggregator panels.
AFG and Connective also offer brokers
various support services to assist them to run their businesses. This
includes customer relationship management software that provides brokers
with the ability to compare products from the lender panel and assist
in the lodgement of loan applications.
AFG and Connective also offer white-label
or own-branded loan products under their respective brands. These
products are mostly funded by third party lenders, however, AFG also
offer loan products funded by its securitisation program.
Looking at the RBA data first, over the past month housing credit stock (the net of new loans, repaid loans and existing loans) rose by 0.3%, driven by owner occupied housing up 0.5%, while investment loans slide just a little, but rounded to zero. Personal credit slid another 0.5% while business credit rose 0.2% compared with the previous month. These monthly series are always noisy, and they are also seasonally adjusted by the RBA, so there is plenty of latitude when interpreting them.
But overall, total credit grew by 0.2% over the month, while the broad measure of money rose just 0.1%.
The three month derived series helps to spotlight the key movements over the past few years. Credit growth for owner occupation rose 1.4%, and it has been rising a little since the May election, and the loosening of lending standards by APRA, and lower rates later. Its low point was a quarterly rise of 1% a few months ago. Investment lending continues to shrink, at 0.1%, but the rate of decline has eased from September, again thanks to loser lending standards. However this also reflects a net loan repayment scheme that many households, in the current tricky environment are on. Personal lending is still shrinking, falling at 1.6%, though the rate of slowing is reversing from a low of minus 1.8%. Business credit is o.4%, but has been falling since October where it stood at 1.8%, reflecting a serious downturn in business confidence and demand for credit. For businesses, the economic backdrop has been a challenging one. The global economy is sluggish and household spending is soft. In this environment business investment in the real economy has lost momentum across the non-mining sectors – weighing on credit demand. Rolling total credit for 3 months is 0.6%, up from a low of 0.5% a couple of months back.
Turning to the annualised data series, housing credit is at 3.1% up from 3.03% last month. Annual owner occupied housing is up 5% from a low of 4.7% in August, while investor loans are down 0.3%, which is the largest fall we have ever seen. Personal credit is 5.1% lower, and that is another record low, while business credit grew by 2.5% on an annual basis, which is the lowest its been for years.
As a result, total credit grew 2.4%, which is the lowest level of growth since 2010, following the global financial crisis. Credit growth has progressively eased after peaking at 6.7% during the 2015/16 financial year. Key to the slowdown was the housing downturn as the cycle matured and lending conditions tightened. On the other hand, broad money is growing at 4.3%, and is significantly higher than last year, which we attribute to the positive terms of trade (thanks to iron ore prices and commodity volumes and RBA open market operations).
So while sentiment bounced after the May Federal election, which removed uncertainty around tax policy for the sector, as the RBA has lowered rates since June by a total of 75bps, with further cuts likely and APRA easing mortgage serviceability assessments; growth is anemaic, and of course sentiment is now in the gutter, thanks to the bushfires, coronavirus, and lack of income growth. While many analysts are predicting a bounce in credit in 2020, and a sentiment turnaround, pressure on global commodity prices and weak international tourism, as well as the drought are likely to take their toll.
We are also seeing more applications for mortgages being received, but also higher rejection rates, so we will see if this will really lead to stronger credit. And given such weak credit, we still question the veracity of the CoreLogic price series, which seems to exist in a different world. Our data supports much weaker average home price growth.
Turning to the APRA Bank series, the total value of mortgages lent (in original terms) grew by 0.34%, which is stronger than the market (0.3%), suggesting that the banks may be clawing back some business from the non-bank lenders, who have been quite active over the past couple of years. Within that owner occupied loans rose by 0.53% in the month, while investment loans grew 0.3%. The rate of growth remains slow.
The total stock of loans did rise, up around $5 billion dollars to $1.09 trillion for owner occupied loans, and up only slightly to $644 billion, giving total exposures of $1.74 trillion, a record. The mix of investment loans fell to a low of 36.9%.
Finally we can examine the portfolio movements by individual lender, which reveals that, according to the data submitted by lenders (which may include some adjustments) CBA grew their portfolio the strongest, up more than $2.2 billion, including both owner occupied and investor loans, followed by Macquarie which continues to drive investor lending very hard, while NAB, Westpac and ANZ grew their owner occupied loans, while dropping their investor lending balances. Bendigo Bank, AMP and HSBC were also active in growing their investor loans. Neo-lender Volt Bank made an appearance in our selected list, while Suncorp dropped the value of both their owner occupied and investor loans. This highlights that lenders are steering quite different paths in their underwriting and marketing strategies. Time will tell whether the new loans being written are more risky.
And in closing, its interesting to note APRA’s release today saying that
The Australian Prudential Regulation Authority (APRA) will expand its quarterly property data publication to include new and more detailed statistics on residential mortgage lending.
In a letter to authorised deposit-taking institutions (ADIs) today, APRA confirmed the next edition of its Quarterly Authorised Deposit-taking Institution Property Exposures (QPEX) publication would include additional aggregate data on residential property exposures and new housing loan approvals.
The decision is part of APRA’s to move towards greater transparency, and will enable more in-depth market analysis by industry analysts, media and other interested parties.
The updated QPEX publication will also feature:
• reporting of additional sector-level statistics for the ‘Mutual ADI’ category; and
• clarified definitions for reported items, specifically for unreported loan-to-value ratios.
APRA Executive Director of Cross-Industry Insights and Data Division, Sean Carmody said: “APRA’s updated Corporate Plan commits us to increasing transparency of both our own operations and the industries we regulate. One of the key ways we can do that is by releasing more of the data we collect.
“With the ADI sector heavily reliant on commercial and residential property lending, enhancing QPEX will translate to greater transparency and sharper insights into one of the most crucial contributors to the economy.”
Consultation is continuing separately on a proposal for quarterly publication data sources to become non-confidential. This would mean that more of the underlying data may be disclosed to the public on a dis-aggregated basis. While this consultation remains open, APRA will continue to publish industry and peer group aggregate data, and mask data in QPEX where an individual entity’s confidential information could be revealed.
The next QPEX will be published on 10 March 2020 for the December 2019 reference period.
We believe that the dis-aggregated data should indeed be released – because sunlight remains the best disinfectant to quote Supreme Court Justice Louis Brandeis. Compared with the disclosures in other markets, Australia is so behind the times, on the pretext of confidentially. So we endorse the need for more granular data to help separate the lending sheep from the lending goats.
I caught up with the founder of Hero Broker, Clint Howen to discuss what he is seeing in the mortgage industry at the moment. The online platform gives an interesting perspective on the changes in the market.
Westpac yesterday announced a number of changes to its credit policy, which have also gone into effect across its subsidiaries: BankSA, Bank of Melbourne, and St George Bank. Via Australian Broker.
Investor lending
Effective 22 October, the maximum loan to value ratio for
interest-only investor loans was raised from 80% to 90% – including any
capitalised mortgage insurance premium.
The update applies to new purchases, refinances within Westpac Group
or externally, and loan variations such as switching from P&I
repayments to interest-only.
However, the current switching policy will continue to apply, with
customers only able to switch to interest-only repayments post 12 months
of loan drawdown.
The changes will not apply to interest-only owner occupier loans, which will maintain their maximum LVR at 80%.
HEM calculations
Also effective yesterday, referral to credit will no longer be
required in instances where expenses are greater than 130% of HEM and no
other reason that requires credit assessment is triggered, a change the
group expects to save brokers time and deliver faster outcomes to
customers.
Updated resources
The group also launched an enhanced version of its Assess calculator,
“developed in response to broker feedback.” It crafted the updated tool
to be more intuitive and streamlined, making the completion of
assessments “much quicker” and saving brokers valuable time.
Westpac plans to remain receptive to feedback moving forward,
inviting brokers to “give it a go” and share their thoughts on their
experience.
The older version of the Assess calculator will not be available for use after 15 November 2019.
