According to the Australian Finance Group’s (AFG) latest Mortgage and Competition Index, which involves a survey of its broker network, lending volumes fell by 10 per cent nationwide in the three months to 31 March 2019 (3Q19), from 25,536 to 23,049 – the lowest quarterly figure reported in six years.
When compared to the previous corresponding period, mortgage volumes declined by 15 per cent from 27,726 in the three months to 31 March 2018.
The total value of mortgage lodgements also declined, falling by 10 per cent ($1.3 billion) quarter-on-quarter, from $12.9 billion to $11.6 billion, and by 16 per cent ($2.2 billion) from $13.8 billion in the previous corresponding period.
According to AFG, the $11.6 billion in volumes recorded over 3Q19 was the lowest quarterly figure since 2014.
Commenting on the figures, AFG CEO David Bailey said that he was troubled by the trend, stating that the data was a reflection of the current lending landscape and subdued activity in the housing market.
“[The] numbers provide stark evidence that the lending environment has significantly deteriorated,” he said. “It’s a wake-up call for policymakers.”
Mr Bailey continued: “The softening of the residential market across the country is a real concern, with Sydney and Melbourne driving the downturn and some states enduring a prolonged period of falling activity.”
The AFG index also revealed that despite the Australian Prudential Regulation Authority’s (APRA) scrapping of its 10 per cent cap on investor lending, volumes have fallen to a record-low of 26 per cent, down from 28 per cent in the previous corresponding period.
APRA’s scrapping of its 30 per cent cap on interest-only lending has also failed to spark an increase in volumes, with settlements dropping to 19 per cent, down from 20 per cent in 3Q18.
Mr Bailey said that the data should serve as a warning to policymakers looking to enact reforms off the back of the banking royal commission.
“The data confirms we have reached a critical time in the housing market cycle, and we would urge policymakers to tread carefully in any regulatory responses flowing from the royal commission,” he said.
“This is a time for considered policy formulation that considers the full potential impact on the lending market.
“It is clear, the broader implications for the Australian economy are huge if we get it wrong.”
Further, the AFG figures revealed that on a state-by-state basis, the value of loan volumes in Western Australia fell to $1.3 billion, which according to AFG, represented the lowest volume seen in the state since the inception of the index.
“Whilst there has been some talk of WA moving into a brighter resources-led period of sunshine, it is clear the local economy needs broader stimulus,” Mr Bailey observed.
All states and territories reported a decline in the value of loan volumes over the quarter to 31 March 2019, with the exception of the Northern Territory, where the value of mortgage lodgements increased by $58.9 million to $60.4 million.
NSW and Victoria reported sharp declines of 20 per cent and 16 per cent respectively, when compared to 3Q18.
Major bank market share slips
The AFG index has also reported that the market share of the big four banks and their subsidiaries declined when compared to the previous corresponding period, with AFG brokers lodging 58.6 per cent of loans to the big four banks in 3Q19, down from 63.2 per cent in 3Q18.
Conversely, the market share of non-major banks increased from 38.6 per cent to 41.4 per cent over the same period.
“The value mortgage brokers deliver by facilitating a competitive lending environment is most starkly shown by the ongoing decline in the market share of the major banks, which peaked in Q3 of 2013 at 78.2 per cent,” Mr Bailey said.
“Outside of the mortgage broking channel, the majors have control and dominate the market. The distribution capability provided by mortgage brokers enables the country’s non-major lenders to compete.
“With the sole exception of first home buyers, who remain the last bastion of major bank lending, the growth in non-major lending has been broadly uniform across all other customer types.”
[Related: AFG prices $500m RMBS]
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.