Big 4 dominate loan book market share: AFG

The major lenders took 60.4 per cent of market share in 4Q23, falling slightly from the prior quarter according to the Australian Finance Group’s (AFG) latest Mortgage Index.

The big four’s market share fell from 61.8 per cent in the previous quarter, however, market share above 60 per cent means their market dominance has returned to the same levels seen in 2017, apart from an initial bump in market share during the uncertainty from the pandemic, according to AFG chief executive David Bailey.

According to the report, the major banks maintain an advantage over smaller competitors through a ratings uplift and deeper pools of deposits as a result of implicit government guarantee protecting the savings of their customers.

“This tilts the playing field in favour of the major lenders with their funding advantages and higher interest rates for existing customers creating an arbitrage that has enabled them to offer discounts and ‘cashback’ deals to lure new customers,” Mr Bailey said.

He added that it’s pleasing to see cashback offers being removed from the market.

“The next quarter will be the time where we see whether the smaller lenders are now able to compete for customers, after being squeezed by pricing and cashbacks on offer,” Mr Bailey said.

Provided in the report, an example of the impact the actions of the big four have had on non-major counterparts can be seen in the flows of volume to AFG Home Loans, which was 5.4 per cent for the quarter, falling from a “historic high” of 10.4 per cent during the same corresponding period in 2022.

“AFG Home Loans took the decision to not write subeconomic loans as the majors leveraged their funding advantages to take market share,” Mr Bailey concluded.

“Reduced competition means Australian home buyers will inevitably be left with higher real long-term borrowing costs.”

Home loan lodgements bounce back

The index report also revealed that AFG’s network of brokers lodged $22.4 billion in residential mortgage finance by the end of the quarter.

This followed three consecutive falls in lodgements since 1Q23, when it dropped from $21.5 billion to $20 billion in 2Q23 and $19.4 billion in 3Q23.

According to the index, the number of lodgements rose to 37,270 in 4Q23 from 32,444 during the previous quarter.

[RELATED: Major banks snatch loan book market share, AFG reports]