The boss of a national mortgage group expects APRA’s lending curbs to extend loan life as the industry faces increased run-off with continued refinancing activity.
Mortgage Choice yesterday posted a 1.7 per cent increase in profit for the full-year to 30 June, with record loan settlements up 10.6 per cent and a loan book growing 4.6 per cent to $49.5 billion.
However, increased run-off from customers pre-paying mortgages in the current low rate environment along with increased payouts from customers refinancing or upgrading resulted in a 2.0 per cent negative valuation adjustment to the group's loan book.
Mortgage Choice saw its average loan life fall by 6.0 per cent to 4.7 years on new mortgages.
On existing loans, the average loan life fell from 4.4 years to 4.0 years.
The group’s average loan life has been falling consistently since March 2011, when the average life of a new loan was 5.9 years and 5.0 years on existing loans.
Mortgage Choice CEO John Flavell said recent regulatory changes should prevent further falls by curbing refinacing activity.
“With the macroprudential changes our expectation is that the level of refinancing activity will diminish and in part that actually adds to loan life as well," Mr Flavell said, adding that the record-low cash rate is also a factor.
“With the cash rate at 2.0 per cent at the moment the question is how many more cash rate cuts are you going to get.
“At some point the reductions in the cash rate cease and when that happens it creates a positive impetus in terms of those loan lives staying on foot.”
Mortgage Choice chief financial officer Susan Mitchell said she is not concerned about the group’s run-off.
“We will continue to add to our book,” Ms Mitchell said.
“There are a lot of changes that are coming into the market right now with the macroprodential changes, which I actually think will slow loan life back down.
“It will contract the volume of lending that’s available and contract the run-off.”