Mortgages too pricey for smaller lenders

The decision by Macquarie Bank in early March to lower its exposure to mortgage origination may represent the tip of the iceberg in terms of a far-reaching restructure of Australia’s sec_ondary mortgage origination market, which will return market power to the major banks.

A number of industry spokesmen have confirmed to Money Management that the cost of funding mortgages has caused a number of the non-bank lenders to review their books, with some of the smaller players consider_ing selling their exposure to major banks.

For its part, Macquarie said the move was due to the significant increase in the cost of funding mortgages and cur_rent conditions in the global mortgage securitisation market.

At the same time, both the chief exec_utive of the Mortgage and Finance Association of Australia, Phil Naylor, and the chief executive of St George Bank, Paul Fegan, have pointed to the likelihood of a rationalisation within the market.

Fegan told an investor briefing that the current market climate would “accelerate a review of the industry structure and how that value is carved and how different participants market it”.

“It will be led by different compo_nents and there will be some squealing, but it will occur,” he said.

However, Naylor believes that while current market circumstances will drive a rationalisation of the sector, he believes it is imperative to the health of the industry that non-bank providers remain strong and viable.

“There is no doubt that the non-bank lenders have had a bit of a storm over the past three months. RAMS has dis_appeared into Westpac and I would not be surprised if there is a bit more con_solidation in the sector,” Naylor said.

“However, I think the sector will remain strong once it sorts itself out,” he said. “It really needs the competitive forces, because if it wasn’t for that sector bank rates would be a couple of points higher than they are now.

“If you cast your mind back 10 or 15 years ago, it was the non-bank sec_tor which brought interest rates back by 3.0 to 3.5 per cent,” he said. “If the non-bank sector disappears, it takes away the competitive force to keep banks at a competitive level.”

Naylor said mortgage and finance brokers were finding the best possible deal for their customers and whether it was from a bank or non-bank was not the issue.

“Banks have certainly increased their market share, but it is early days yet, and I am confident there will still be a healthy non-bank sector albeit that it may look a little different to the way it does today.”