Mortgage industry ‘as busy as ever’

Speaking to the media following the release of broking group Mortgage Choice’s full-year results for the 2019 financial year, CEO Susan Mitchell said the group has experienced a sharp increase in demand for home loans in response to the Reserve Bank of Australia’s (RBA) back-to-back cuts to the cash rate and the Australian Prudential Regulation Authority’s (APRA) new lending guidance.  

When asked if demand was more pronounced in particular segments of the market, Ms Mitchell said that it had come from “across the board”, adding that lenders had reported similar trends.

“We have seen our loan applications rise significantly since June 30. I think everyone has seen that,” she said.

“The feedback I’ve gotten from the banks is that they are as busy as they’ve ever been. 

However, the recent uptick in demand has not been realised in Mortgage Choice’s FY19 result, with mortgage settlements falling 18 per cent, from $11.5 billion to $9.4 billion.

“There’s a lot of activity, and I think we still need to see that activity come through into settlement results, which will obviously take another few months,” she said.

Ms Mitchell attributed the fall in home loan volumes over FY19 to subdued market activity in response to weaker housing market conditions and increased scrutiny on mortgage applications.

“Settlements for the year were lower than we expected, given a tightening of credit and lending processes for residential mortgages and a continued softening of the housing market in the wake of the [banking] royal commission, especially in the second half,” she said.

The decline in mortgage volumes led to a contraction in the brokerage’s loan book, which slipped by approximately $300 million from $54.6 billion to $54.3 billion.

As a consequence of falling settlements, the total value of commissions received by Mortgage Choice fell by 6 per cent ($11.2 million), from $168.5 million to $157.7 million.

However, the total value of commissions paid by Mortgage Choice to its broker network increased by 6 per cent from $108.8 million to $115.5 million, reflecting changes to the brokerage’s remuneration model, which also weighed on its underlying financial performance.

The total value of Mortgage Choice’s net core commissions fell by 29 per cent, from $59.7 million to $42.2 million.  

The withdrawal of its white-label partnership with Macquarie Bank and increased IT expenditure also reduced its pre-tax earnings by approximately $700,000 and $600,000, respectively. The revenue losses were partly offset by an above-target reduction in operating expenses of 17 per cent ($6 million).

As a result, Mortgage Choice’s net profit after tax dropped 40 per cent, from $23.4 million in FY18 to $14 million.

[Related: Mortgage approval values bounce bank]