Cheaper funding has primed the mortgage market for a new wave of smaller lenders to drive competition.
The once burgeoning non-bank lender sector was decimated by the 2008 liquidity crisis but improved market conditions could soon change the prospects of mortgage managers.
Widening margins, stronger funding and a 50 per cent broker market share has paved the way for smaller lenders to re-emerge.
RedZed managing director Evan Dwyer told Mortgage Business a surplus of funding has shifted competition onto origination.
“What I expect to see is some new people pop up,” Mr Dwyer said.
“In our market, if we go back 10 years, half the people were investment bankers and half of them were what I would call operations people or originators,” he said.
“All the investment bankers disappeared and we were left with guys that just underwrote mortgages. I can see us going back the other way at some point.”
In the last 12 months, Mortgage Choice has received a number of approaches from non-bank lenders wishing to join its panel, according to chief executive Michael Russell, who noted that lower funding costs had increased the profitability of residential mortgage products.
“The product is a lot more profitable to bank and non-bank lenders, which has only served to increase their appetite for originations,” Mr Russell told Mortgage Business.
Funding has been a hot topic in recent weeks after the European Central Bank cut its rates on June 5, causing the market – and the media – to speculate on the broader implications for domestic borrowers.
More importantly, lenders are no longer competing for funding but have shifted their focus towards origination and distribution, according to Homeloans Ltd general manager Ray Hair.
“Evan has hit the nail on the head in the sense that right now it is not about who is going to get the funds in a competitive sense, because there are funds out there,” Mr Hair told Mortgage Business. “Therefore origination becomes the key,” he said.
Mortgage originators are competing less on innovative product offerings and more on who is selling their products, Mr Hair said.
“What you need as a lender – whether you are a bank or non-bank lender – is access to distribution,” he said.
Over the years, the broker channel has proven to be a profitable distribution vehicle for lenders.
Almost half of all residential mortgages are now written through the third party, a critical channel for introducing new customers to brands, according to Finsure managing director John Kolenda.
“We believe many smaller lenders will enter this market to access volumes otherwise not available to them,” he said.