subscribe to our newsletter

Banks facing mortgage market ‘dilemma’

A “complex” market dynamic has inhibited the competitive ambitions of lenders, who are confronted with increased scrutiny in a softening market, according to one economist.

Speaking to Mortgage Business, economist at Market Economics Stephen Koukoulas claimed that lenders are confronted with a “dilemma” as they seek to strike a balance between attracting new home loan customers, offsetting cost pressures and remaining compliant with responsible lending obligations.

Mr Koukoulas noted that with the housing market softening, and investor demand for credit dwindling, banks are faced with the question of whether or not to ease lending criteria to lure home loan customers.

“The banks make a lot of their money from mortgages — about two-thirds of their profits are mortgage or mortgage-related,” Mr Koukoulas said.

“If you’re having a housing decline with prices falling and investors perhaps stepping away as well, then that competition for business will be intense, but the question there is, do they really relax their lending criteria for that, so they’ve got a real dilemma.”


However, the economist flagged the risks associated with lending to higher-risk borrowers in a declining market.

“The last thing they probably want to do is lend to marginal borrowers in a declining market, so they’ve just got to be very careful as they try to maintain market share or even increase market share in these difficult times for housing,” the economist added.

“They don’t want to be caught lending to the wrong people at the wrong time of the cycle.”

Mr Koukoulas concluded that banks may have to concede that they’re entering into a tougher lending cycle, following “many years” of growth.

“Its a really complex issue, but for the banks, in a sense, having had so much of a good time with mortgage over many years, perhaps were at the early stages of a period, which will be a lot tougher for the banks and for us mortgage holders.


“With prices falling and interest rates creeping up modestly, its a pretty significant trend thats unfolding.”

[Related: Bank rate hikes ‘reasonable’ despite ‘unusual’ market: ANZ]

Banks facing mortgage market ‘dilemma’
mortgage market, house market softening, banks

If you have ever considered how you could better service your SME clients but lack the knowledge or confidence to do this beyond referring them on, this is a must-attend event for you. Don't miss SME Broker Bootcamp, a jam-packed, free-to-attend, practical workshop. Register today and secure your place at this interactive, flexible, must-attend event.

Charbel Kadib

Charbel Kadib is the news editor on the mortgages titles at Momentum Media.

Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.

You can email Charbel on: This email address is being protected from spambots. You need JavaScript enabled to view it.

Latest News

The major bank’s chief has apologised to customers, admitting far-reaching systemic issues led to each of the six matters presented in new...

Several lenders, including major banks, have offered loan repayment relief and fee waivers for NSW and Queensland residents impacted by floo...

The Federal Court has ordered La Trobe Financial Asset Management to pay a $750,000 penalty for “false and misleading marketing” of the ...

Join Australia's most informed brokers

Do you know which lenders are providing brokers and their customers with the best service?

Use this monthly data to make informed decisions about which lenders to use. Simply contribute to the survey and we'll send you the results directly to your inbox - completely free!

Do you think APRA's bank buffer changes will see more borrowers use non-banks?

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.