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Non-bank mortgages growing twice as fast as majors

New research from Morgan Stanley has found that the non-banks are growing their mortgage books at twice the rate of the big four as tighter lending standards continue to weigh on the majors.

In its latest research update, Morgan Stanley noted that the major banks’ mortgage growth is continuing to slow with further speed bumps ahead.

“The major banks recorded just ~3.5 per cent annualised mortgage growth over the past three months vs ~4 per cent a month earlier,” the research report said.

“We recently lowered our loan growth forecasts to ~2 per cent in both FY19E and FY20E, reflecting tighter lending practices by APRA, the royal commission’s increasing focus on responsible lending and more onerous capital rules.

“In our view, these tighter lending standards are creating a competitive disadvantage for the banks.”

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The report found that on a year-on-year basis, major banks’ home loans are tracking at ~5 per cent growth, non-majors or other banks at ~8 per cent and the non-banks at ~10 per cent.

However, the non-banks experienced a steep decline in mortgage growth in the first few months of 2018, from a peak of 20 per cent in November 2017 to 10.1 per cent in May of this year.

Investor mortgage growth is slowing faster in response to regulatory measures, which Morgan Stanley sees as a negative for major bank margins.

“Given the regulators’ goal of reducing housing loan volumes towards household income growth of ~3.5 per cent, we expect system growth to continue normalising from the current ~6 per cent YOY pace,” the report noted.

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“Growth in owner-occupier loans or OOL (~6.5 per cent, adjusted for restatements from investor property loans, or IPL, to OOL) is proving more resilient than IPL (~4.5 per cent).

“All else equal, this is negative for bank margins given lower standard variable rates (SVRs) and more front book competition in OOL vs IPL. The New APRA framework is likely to lead to higher risk weights for higher-risk loans, diluting future returns on mortgages without additional repricing.”

[Related: ‘Rentvesting’ stressfull for home owners]

Non-bank mortgages growing twice as fast as majors
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