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Australian Mortgage Market: Forecasts and Future Opportunities 2018

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Published Date : Mar 2018

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No. of Pages : 55 Pages

Australian Mortgage Market: Forecasts and Future Opportunities 2018


"Australian Mortgage Market: Forecasts and Future Opportunities 2018", report looks at the Australian residential mortgage market, with coverage of both the investment property and owner-occupier market, including first-time buyers.

The Australian mortgage market has gone from strength to strength in recent years, but growth is finally tipped to decelerate as investors take a breath and property inflation cools in the countrys key cities. An active regulator has sapped much of the bubble in the investment property market, which will result in slower growth in 2018 and 2019. Lenders will need to adjust to a market not dominated by investors and refinancing as rates begin their slow rise.

Specifically the report -
- Analyzes the relative performance of the major sectors of Australias mortgage market, including mutuals, banks, and non-ADI lenders.
- Reviews the drivers behind recent market performance.
- Forecasts balances outstanding for both mutual and bank lenders, looking at the evolving growth of the investment property, owner-occupier, and first home buyer segments.
- Forecasts future drivers of growth and product features.


- Market growth was a surprisingly strong 6.8% in balances in 2017 as first home buyers returned to the market towards the end of the year.
- Gross advances will grow at a more modest 4.6% in 2018, supported by refinancing ahead of late 2018 monetary tightening and enduring strength from first home buyers.
- Wholesale lenders are expected to gain market share in 2018 as authorized deposit-taking institutions (ADIs) remain cautious, although brokers will continue to grow as a distribution channel.

Reasons to buy

- Which factors will impact the supply of mortgage lending?
- Which factors will affect consumer demand for mortgages?
- Which sectors offer the best prospects and opportunities for expansion over the next few years?
- What will be the market share of key mortgage sectors over the next few years?
- What fintechs are making an impact on lenders and borrowers in the Australian mortgage market?
Table of Contents
1.1. Slower growth is ahead, but the market is still on track to exceed A$2tn 2
1.2. Key findings 2
1.3. Critical success factors 2
2.1. Growth continues to moderate as new lending falls off late in 2017 8
2.1.1. Australias residential mortgage market was worth A$1,770bn at the end of 2017 8
2.1.2. When the regulator speaks, the market moves 9
2.2. Mortgage growth is derived almost entirely from owner-occupiers, but first-time buyers are returning to the market 11
2.2.1. Higher rates and tighter criteria have dampened the once-booming investor segment 11
2.2.2. Residential mortgage underwriting remains dominated by bank ADIs 12
2.3. Market profitability has been under strain as net interest margins remain at all-time lows 13
2.3.1. Even major banks are struggling with margin compression, although RBA rate rises could change the picture 13
2.4. Market activity continues to heavily feature refinancing, with talk of a construction glut not figuring prominently in lending data 15
2.4.1. Gross advances in 2017 were higher based on a recovery of investor activity 15
2.4.2. RBA base rate increases are not expected until late 2018 at the earliest 18
3.1. Australian mortgage lenders can expect higher balances but not high lending volumes 21
3.1.1. Growth will return to normal - if the market remembers what that is 21
3.1.2. Bank lenders will see growth rates in line with market totals 22
3.1.3. Credit unions and building societies will be strongest over the forecast period 23
3.1.4. Wholesale lenders will claw back market share from ADIs as niche mortgage products revive 24
3.1.5. Gross advances will increase in 2018, driven by refinancing and first home buyers 25
3.2. Mortgage lending over the forecast period will be affected by regulation, interest rate increases, and affordability 26
3.2.1. Factors that are relevant but discounted over the forecast period 28
4.1. The owner-occupier market will be driven by consumer confidence 31
4.1.1. Improving but erratic consumer confidence will boost growth at the margins of the owner-occupier market 31
4.1.2. Property prices finally hit a wall in the key Sydney market, but are rebounding elsewhere 32
4.1.3. Affordability for other owner-occupiers has stayed relatively steady, but suffers from considerable interest rate risk 34
4.2. Investor activity will be moderated by the glut of inner-city apartment completions 35
4.2.1. Income from investment properties is no longer what it once was 36
4.2.2. Demand from foreign investors has become a contentious element of the market, but much of it is funneled into new builds 37
4.2.3. Government policy will remain broadly supportive of the domestic investor segment but more restrictive for foreigners 39
4.2.4. While dampened by heightened demand for fixed-rate mortgages, loans with offset facilities will remain a mainstay of the market 41
4.2.5. Interest-only mortgages will be out of favor for some time yet 41
4.3. Distribution suggests a stabilization of the broker channel 42
4.3.1. Australian mortgage distribution has changed considerably since the financial crisis 42
4.3.2. Broker-only deals have proliferated, and consumers are increasingly using the channel for refinancing 43
4.3.3. Brokers are under review by the Productivity Commission, which may recommend significant changes 45
4.4. Almost all product innovation has focused on distribution 47
4.4.1. Tic:Toc highlights the need for speed, and that not all innovation is dependent on the big four 47
4.4.2. Westpacs uno aims to be the modern digital incarnation of the mortgage broker 49
4.4.3. BRICKX offers property exposure without an investment property mortgage 50
5.1. Abbreviations and acronyms 52
5.2. Methodology 52
5.2.1. Forecast methodology 52
5.3. Bibliography 53
5.4. Further reading 54

List of Tables
Table 1: Bank sector residential mortgage balances outstanding (A$m), 2012-22f 23
Table 2: Mutual sector residential mortgage balances outstanding (A$m), 2012-22f 24
Table 3: First-time buyer activity in Australia, 201117e 34
Table 4: Foreign investor residential property volume with key gross lending metrics (A$m), 2010-16 38

List of Figures
Figure 1: Interest-only mortgages have fallen in absolute value even as the market has grown 9
Figure 2: Banks continue to account for the bulk of Australian residential mortgages 12
Figure 3: Net interest margins have stabilized at a low level, making efficiency a key competitive advantage 14
Figure 4: Housing-related non-performing assets have crept back up but remain low 15
Figure 5: Lending volumes are recovering after a 2016 regulatory crackdown caused a drop-off in investment property 16
Figure 6: Refinance activity has stopped growing as a proportion of gross advances since a spike after the last RBA rate cut 18
Figure 7: The proportion of fixed-rate products is increasing, but growth is erratic and slow 19
Figure 8: Investment property rates are higher, while owner-occupier APRs have stabilized 20
Figure 9: Mortgage balances outstanding will rise slowly over the forecast period 22
Figure 10: 2017 marked a decisive turning point for Australian dollar mortgage securitizations 25
Figure 11: Rising interest rates will keep gross advances growing faster than 2017 for most of the forecast period 26
Figure 12: Factors affecting the growth of mortgage balances outstanding in Australia 28
Figure 13: Millennials are lagging in the mortgage market 29
Figure 14: Rising confidence at the end of 2017 boosted first home buyers from historic lows 32
Figure 15: Darwin and Perth remain the weakest markets, even with Sydney cooling 33
Figure 16: Household debt is a concern if interest rates rise rapidly, which is unlikely given current trends 35
Figure 17: Sydney rental yields are down, squeezing investor margins as borrowing costs have risen 37
Figure 18: Brokers are originating close to half of new loans in the market 43
Figure 19: Only CBA and Bendigo and Adelaide have bucked the market trend towards increased broker business 45
Figure 20: Tic:Toc brings speed and certainty to a typically slow and angst-ridden process 48
Figure 21: First home buyers are open to digital options, and well over a third of the market used online at some point during the mortgage application process 49
Figure 22: Australian retail investors turn first to property in their portfolios 51

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