Largest finance companies double home loan market share since 2020
The portion of new home loans being written by the largest finance companies has doubled since 2020, CoreLogic data shows.
Companies including Basecorp, Bluestone, Avanti Finance and Resimac have increased their share of the new-home loan market from 3% in 2020 to 6% during 2022.
Mortgage lending is big business. Reserve Bank data shows between the beginning of the year and the end of April, $23.3 billion was lent out in new home loans.
The increase equated to hundreds of millions of dollars more being lent by non-bank entities, which often came with higher interest rates, and which were usually made to riskier borrowers.
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Head of research Nick Goodall said when non-bank and second-tier lenders were included (which included the likes of the Co-Operative bank and TSB), these outfits had increased their market share from 10% in 2020 to 14% during 2022.
The average one-year fixed home loan rate being offered by banks is 4.85% for those with a 20% deposit.
By comparison, finance company Resimac is advertising a one-year fixed term interest rate of 6.19% to the same group.
Goodall said the increased market share of non-bank lenders was in part down to greater regulation within the banking sectors.
Of particular impact were tighter loan to value ratio (LVR) restrictions imposed by the Reserve Bank, which only allowed banks to issue up to 10% of their loans to borrowers with less than a 20% deposit, and up to 5% of lending to investors with less than a 40% deposit.
Changes to the Credit Contract and Consumer Finance Act (CCCFA) were also likely to have contributed.
The changes resulted in more onerous checks being required by lenders before a loan could be issued, and introduced fines if the loan was deemed irresponsible.
Head of Squirrel Mortgages John Bolton predicted in January this would happen.
He said under the CCCFA senior bank managers and directors could be personally fined $200,000 if their bank did not comply with the rules.
Because banks were so big, there could be up to five steps between the banker on the ground granting the loans, and the executive who was personally liable if the loan did not comply.
The executives of non-bank lenders were generally closer to the action, and would therefore feel more secure in signing loans off, Bolton said.
More recent changes to the CCCFA came into force on July 7, which removed blanket requirement for lenders to comb through months of borrower’s spending and allowed lenders to recognise spending habits may change once they took on debt.
Commerce and Consumer Affairs Minister David Clark said banks and non-bank lenders had their own risk appetites and credit policies that determine who they were prepared to lend to.
“Everyone, including non-bank lenders, are all subject to the same CCCFA rules,” he said.
Clark said the rules struck an appropriate balance between ensuring that consumers could access lending while maintaining a strong level of consumer protection.