A sharp economic downturn is the biggest fear for Australia's banks and broker groups as they attempt to map the future growth of mortgage settlements.
The $1.4 trillion mortgage market experienced 20 per cent growth in loan settlements in 2014, but industry figures are now warning that this level of growth is unlikely to continue.
In December last year, Deloitte asked eight industry executives what would be the biggest threat to growth in the mortgage market in the coming years.
“The most voted response was a downturn in economic growth,” Deloitte financial services partner James Hickey said.
James Sheffield, general manager for proprietary support and mobile lending at CBA, said he has grown more bearish on the economic outlook.
He listed macro issues such as slowing Chinese growth, rising unemployment locally and the increase of regulation globally as areas that could weigh on mortgage growth in 2015 and beyond.
“There are also concerns about higher loan to value ratios and investment lending, which mean the recent extraordinary growth in NSW will slow,” he said.
“I think we’re driving towards a period of flatter economic growth.”
AFG executive director Malcolm Watkins noted that WA and Queensland have already seen some decent growth in 2014, but added he believes that nationally, this year “won’t be nearly as strong” as 2014.
“We brought a lot of people to the market ahead of the national average and may see some cooling off of that growth in 2015,” he said.
Speaking to Mortgage Business this week, Deloitte Access Economics director Michael Thomas noted that the economic outlook had worsened since the group asked the mortgage and banking executives to share their biggest fears.
The Reserve Bank cut rates to a new record low of 2.25 per cent in February, with further easing of monetary policy expected in the coming months.
The market has already priced in 50 basis points of cuts by the end of 2015.
“On an 18 months viewpoint, you either have interest rates where they are now or slightly lower, so no sign and no one talking about rates going up for the next 18 months,” Mr Thomas said.
“They are positives for the mortgage market.
“However, there is a reason why interest rates are so low, Mr Thomas added. “The unemployment rate is trending up slowly and wages growth is dead in the water.”