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ISSUE 6.14 July 2009
AFG: Lack of lending competition a big worry
Brokers’ position
still strong despite dominance of majors The growing dominance of the major banks in mortgage lending is raising alarm bells at aggregation giant, AFG. As part of its June Mortgage Index report, Mark Hewitt, the aggregator’s general manager for sales and operations, noted the encouraging signs that the mortgage market is normalising with first homebuying, investor activity and LVRs all reverting towards the long-term trend after a period of turmoil. However, he said the “real concern is that over 90% of all home loans are controlled by just four institutions”.
Mark Hewitt
“The lack of consumer choice, and the implications that has for future pricing, is a real obstacle to the functioning of a healthy mortgage market,” Hewitt said. Speaking to Australian Broker, Hewitt said the dominance on these lenders had allowed them to exert more influence over brokers. “You’re seeing in their accreditation [requirements], policy and pricing. It has allowed them to flex their muscle, whereas in the past there had been competition from a strong second and third tier,” he said. Hewitt said there were concerns that the banks would lift rates outside of the RBA cycle due to the fact that second and third tier lenders were unable to access funding to compete. He added that from a consumer point of
view the lack of competition was also a worry. “Our industry has been based on competition and it’s always been a great thing for consumers.” However, he said the transference of power to the four lenders did not bode well for the man on the street. The June AFG mortgage index was released just before the idea of a ‘People’s Bank’ – in the style of New Zealand’s Kiwibank – attracted front page headlines in national newspapers. Hewitt said he could not comment on the idea, but did suggest that rather than provide guarantees for bank deposits, the government should guarantee residential securities. At any individual broker level, he said there were still other lenders in the market to support: “There are other alternatives out there, not as many as before, but we all have a responsibility to stimulate competition.” Connective principal Mark Haron said he generally agreed with Hewitt: “The continuing consolidation [of lending] to major banks isn’t good for competition.” And while Haron backed the idea of an Australian version of Kiwibank, (which he explained was set up because there were no longer any New Zealand-owned banks left in the country) he said setting up a “Koala Bank” in Australia would take a long time to happen. Page 4 cont.
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