The market has continued to slow
The market has continued to slow as the Reserve Bank’s repeated cash rate increases hit borrowers, according to a new report from Australian Finance Group (AFG).
“AFG recorded a drop in lodgement volume of 3.3% for the third quarter of the 2023 financial year,” AFG CEO David Bailey (pictured above) said in a news release. “This is 11.67% down on the corresponding period last year. However, lodgements remained consistently above pre-pandemic levels.”
Drops were seen across Australia, AFG reported. New South Wales was the hardest hit, down 15.4% from the same period last year. Queensland fell 11.6%, Victoria was down 10.5%, and Western Australia dropped 10.1%. South Australia saw less impact, with a drop of only 0.4%.
“Investors continued to dip their toe back into the market, with investment lodgements up 1% to 28%,” Bailey said. “Despite many reports of first-home buyers pulling back, they represented 12% of volume, a 1% increase in those taking their first steps into the housing market. This is a reflection of full employment still underwriting demand for home equity.”
Refinancing held steady at 31%, and upgraders dropped 1% to 38%, AFG reported. The average loan size dropped from $600,149 to $598,258 for the first quarter, and the national loan-to-value ratio rose from 65.4% to 65.7%.
“Extraordinary competition”
“The extraordinary competition between the major banks for market share, including cashbacks on offer for new customers, has seen the major lenders once again take market share from their non-major rivals,” Bailey said. “Major lender lodgements were up 2.2% to 61.8%, the highest level since the final quarter of 2020. This has been fuelled by the majors continuing to benefit from lower funding costs linked to the government’s Term Funding Facility, a lag in passing on deposit rate increases to customers, and the prevalence of subeconomic cashback offers.
“The longer-term consequence of this situation is that smaller lenders will continue to be squeezed, impacting choice and competition for Australian borrowers, and will ultimately result in higher real long-term borrowing costs for Australian home buyers,” he said.
AFG retains top spot
Despite the intense competition, AFG Home Loans held onto its number-one spot as a non-bank lender, the company said. Volumes for the quarter comprised 5.3% of AFG’s total lodgement volume.
“Despite stronger penetration of 6.19% in March, this was lower than the 5.81% recorded for the quarter to 31 December 2022,” Bailey said. “The growing uncertainty across global funding markets will undoubtedly have an impact on competition in Australia. Reduced liquidity and higher funding costs will add to the squeeze on smaller lenders across the sector.”
Borrowers look for savings
Even with this month’s pause in cash rate hikes, home buyers dealing with the impact of 10 consecutive rate rises will be looking for ways to save money, AFG said.
“The major banks’ customers often pay a ‘loyalty tax’ as lenders chase new customers with better rates and cashback offers, usually at the expense of their existing customers,” Bailey said. “This will encourage customers to shop around. However, with competition in the home loan market continuing to be the domain of the major lenders, the restoration of an even playing field for non-major lenders is vital to ensure alternative lending options.
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“As markets factor in predictions of rate falls next year, the pricing of longer-term fixed-rate products is beginning to reflect this expectation,” he said. “This has, in turn, led to more borrowers choosing a fixed-rate loan, with the share of those products rising from 4.8% to 5.6%. This is the second consecutive quarter they have ticked up, albeit still well below long-term averages.”
AFG said that one positive to come from the slowing market has been an improvement in lender turnaround times. The average number of days from the submission of a loan application by an AFG broker to formal approval has fallen from 17.9 to 17.7, the company said.
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