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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

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.

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