This article is from the Australian Property Journal archive
MAJOR lenders and mortgage brokers are expecting a modest recovery in overall lending growth this year, as the green shoots of the second half of 2019 continue into 2020, while first home buyers may find it tough to increase their market presence amid sluggish wages growth.
Deloitte financial services partner James Hickey said a decline in settlements led to a slowing in the overall outstanding lending rate.
New mortgage financing or settlements totalled $316 billion over the 2019 calendar year. This was an average of $26.4 billion each month, which a Hickey said was a notable reduction compared with 2018.
The 12 months to the end of June saw an annualised increase in the total outstanding stock of mortgages of 3.7% – the lowest rate of mortgage lending growth in Australia in the past decade.
Total outstanding stock of mortgages across calendar 2019 grew to $1.82 trillion.
Deloitte’s Australian Mortgage Report included a roundtable featuring representatives from the nation’s chief lenders and broker groups, along with Deloitte partners.
Deloitte financial services partner, Heather Baister said that although the Deloitte roundtable group predicts a relatively modest recovery in 2020 in terms of overall settlement volumes overall, competitiveness between lenders will mean outcomes at a lender level is likely to vary noticeably.
NAB’s general manager, home lending Paul Riley agreed.
“If we look at forecasts at a total systems and market level, that is settlements net of repayments and refinancing, most are forecasting total growth in outstanding mortgage volumes between 2% to 3%. However, the composition by customer segment, channel and by individual lender within that very macro number is likely to be quite different.”
“For the market to sustainably grow, we need to be building more houses and customers will need more income and confidence.”
Loan Market chair Sam White said the lack of properties for sale was also one of the biggest features of 2019.
“Pre-approval numbers were massive. Customers were ready to buy but they simply could not find the property, as supply was not coming to market.”
According to SQM Research, listings surged in January, as higher prices and buoyant market sentiment encouraged vendors to test the market.
Sluggish wages growth to slow down first home buyers
New Australian Bureau of Statistics data showed that with residential market sentiment on the up, new home loans hit their fastest rate of growth in over three years in December, reaching 4.4%.
First home buyer loans skyrocketed in annual terms by 38%, following a 6.2% monthly increase to $3.96 billion. Investor home loans grew 2.8% to $5.44 billion and are 4.9% higher than December 2018.
Commenting on last week’s data, BIS Oxford Economics principal economist, Tim Hibbert said the First Home Loan Deposit Scheme that commenced in January has had a strong take up, which will further propel first home buyer demand upwards in March quarter.
As part of Deloitte’s roundtable, Daniel Carde, head of third party distribution at Resimac, said there would be sustained growth in the first home buyer’s market is through product innovation focused on affordability, a position held by ANZ’s general manager home loans, John Campbell.
“Affordability in that first home buyer segment is a real challenge. Banks are doing our bit to support first home buyers, so it is not a question of desire or ability to make credit available to that segment, but more about how to get them into the market responsibly.”
Concerns about affordability have been raised with the stunning rebound in house prices. Moody’s Investors Service warned last year the turnaround is likely to worsen Australian housing affordability issues. Mortgage interest rate cuts and house price declines had taken down the share of household income mortgage borrowers need to meet repayments on new loans.
Michael Thomas, Deloitte Access Economics financial services lead said that if productivity is not going to boost wages growth, it’s “really hard to see first home buyers make headway against others in the market”. Wages growth is broadly expected to remain stagnant at around the current level of 2.2%.
Employment downturn and/or a continued low salary growth job market, as well as policy decisions such as capital levels serviceability impacting lending requirements were noted by the participants as the biggest concerns for the mortgage market in 2020.
“Where the Australian economy heads over the next year is even more dependent on the pace of housing construction than it usually is,” Thomas said.
“Housing construction is headed down rapidly, at the same time that house prices are headed up rapidly. Those seesawing conditions – prices up, volumes down – suggests housing construction has rather further to fall.”
Thomas said housing starts have moved from 225,000 in calendar 2018, to 179,000 in 2019,
and are expected to bottom out at 166,000 in 2020.
“So, 2020 is likely to be the low point.
“However, Australia’s population growth is too strong for falls to be sustained much beyond 2020, which is likely to be the low point.”
Mixed activity and approval numbers in the final stages of 2019 back up the forecast of more pain on the way for Australia’s construction sector before some recovery in the second half of the year.
According to the Australian Bureau of Statistics, building approvals across the market slipped in December but outperformed expectations, while the Australian Performance of Construction Index readings for new orders in January edged closer to stable for houses, while apartments new orders dropped further into contraction.
Open Banking
About 30% of the roundtable participants believe that open data will increase opportunities for fintechs to leverage data to offer tailored customer solutions, and 25% believe greater ownership of data by customers will shift power into the hands of the customer.
One-fifth believe that opening up data ownership and transfer will lead to greater price competition, and another 20% believe customers will remain concerned about data and privacy.
“Interestingly, only 5% of the participants believe that there will be customer inertia, which means that this representative group of Australia’s lenders believe that giving customers more information, a level playing field, and allowing some innovative fintechs and established lenders to supply innovative offerings will benefit consumers in 2020,” Hickey said.
