Big four dominate mortgage market ( 53 Views )

1. THE big four banks continue to dominate the mortgage market although growth has slowed dramatically and the global credit crunch has begun to force credit rationing among big lenders, a report says. JP Morgan/Fujitsu's eighth Australian Mortgage Industry Report also says that the number of households suffering mortgage stress will rise to one million in 2009 from 800,000 this year. Mortgage stress usually occurs when homebuyers pay more than 35 per cent of their income as loan repayments. The report, released today, was compiled before yesterday's one percentage point drop in the overnight cash rates by the Reserve Bank of Australia, of which the major bank's passed on 80 per cent of the cut. However, the report says the banks' repricing of home loans outside of the RBA's decisions on the official cash rate could lead to housing lending growth continuing to decelerate. "System housing growth has contracted from a peak three month annualised growth rate of 23.4 per cent in November 2003 to 6.0 per cent in August 2008," JPMorgan's banking analyst Brian Johnson said. "This rate of growth deceleration has been at its greatest most recently, reflecting households' cautious assessment of the prospects for the domestic economy.
   
   "Loan volume growth has slowed dramatically, and in the absence of construction activity house prices are the biggest driver of growth," Mr Johnson said. "And that growth has slowed dramatically - we're beginning to see what I would call credit rationing in mortgage lending in Australia. "The big banks have a competitive advantage - by that I mean AA rated banks - because securitisation markets are still open, but they are open at rates that are prohibitively above the rate you would use to write the loan." The report found the big four banks - National Australia Bank, ANZ, Westpac and Commonwealth, account for between 65 and 70 per ent of the mortgage market, with the smaller banks taking the banking sectors's total share to 90 per cent. Fujitsu Consulting director Martin North said housing affordability in Australia was as bad as it had ever been. "Prices are still fairly stretched .... the cost of living has gone up and people's disposable income has actually slipped backwards," Mr North said. "In the US, housing delinquencies (those behind in their repayments) are about six per cent, in the UK it's about 2.5 per cent, and in Australia it's about 1 per cent - which is still relatively low but it is rising." Mr North said a major driver in mortgagors refinancing their home loans was their paying down other debt - including credit cards. "In Australia, some 80 per cent of mortgage loans are done at variable rates," Mr Johnson said. "The liquidity at the short end of the market is as tight as it's ever been, the cost of funding is not a pretty picture and even the cost of retail deposits has gone up. "What the banks are doing is slowing their volume growth and the other thing they're doing is repricing their existing loans."
   
   (levent, Turkey)

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