Home Loan Borrowers Turning Away From Banks
Sydney Morning Herald
Saturday December 30, 1995
Home loan borrowers are deserting banks in record numbers to refinance their mortgages with the growing band of non-bank mortgage providers undercutting banks on interest rates by as much as 1.75 percentage points.
While official statistics are sketchy, mortgage managers - which have stolen around $3 billion worth of the banks' home loan business over the past 12 months - report that as many as half their applications come from disgruntled bank customers.
"At least 50 per cent of our business comes from refinancing," said the treasurer of mortgage manager Super Member Home Loans, Mr Darrel LaBrooy. "And that's indicative of the whole industry."
Managing director of the biggest mortgage manager, Aussie Home Loans, Mr John Symonds, said 35 per cent of the $2 billion or so in home loans it wrote each year were provided for home loan borrowers who had left a bank or building society.
The mortgage-hopping underpins a rapid escalation in the market share of the new lenders.
The latest figures show mortgage managers and other cheap home loan providers, like life insurance companies, with 10 per cent of the $120 billion home loan market.
In October, these lenders lent $370 million to mortgage borrowers, up more than 70 per cent on the previous year, while the banks' home loan volumes remained stagnant.
"We are just going to get bigger and better next year," said Mr Symonds. "The banks haven't seen anything yet."
The boom for mortgage managers is a simple reflection of their ability to undercut bank interest rates. According to the interest rate comparison service Cannex, the average mortgage managers' standard variable rate is 9.28 per cent - well below the banks' average of 10.34 per cent.
Super Member Home Loans (SMHL) - a joint venture by the ACTU and National Mutual - is offering a standard variable rate of 8.7 per cent.
However, Cannex's managing director, Mr Andrew Willink, said some of the mortgage managers were on such fine profit margins they could be forced to put up rates in 1999. He pointed to Citibank's recent decision to raise its variable rate by 0.25 percentage points to 9.2 per cent.
Citibank finances its home loans in a similar fashion to mortgage managers.
SMHL's Mr LaBrooy said he saw no reason why rates should go higher, all things being equal. However, he forecast that some smaller lenders would be forced to close next year. Two small mortgage managers went bust this year, although their loans were taken on by another party.
© 1995 Sydney Morning Herald