Australian Mortgage Market 2020 - Review, Forecasts, and Future Opportunities

Table of Contents

1. EXECUTIVE SUMMARY

• 1.1. Market summary
• 1.2. Key findings
• 1.3. Critical success factors

2. MARKET ENVIRONMENT

• 2.1. The COVID-19slowdownwill flatten the mortgage market
  • 2.1.1. Mortgage growth is expected to rebound from 2021 onwards
• 2.2. Banks will continue dominating the mortgage market in Australia
• 2.3. Lenders have made their fixed-rate loans more competitive in a bid to lure customers towards higher long-term rates
  • 2.3.1. Tracker rates are likely to subside, with fixed-rate deals becoming more mainstream
  • 2.3.2. The RBA has signaled rates are at their floor, meaning fixed-rate products will finally rise again
• 2.4. A mix of market outcomes and regulation has led to the dominance of 61% to 80%LVRhome loans with large lending values
  • 2.4.1. Alternative LVRs have become more popular in recent years, driven partly by first-time buyers
• 2.5. Investment activity no longer drives the overall mortgage market
  • 2.5.1. Meanwhile, owner-occupier growth has finally synchronized with the wider market

3. MACROECONOMIC ENVIRONMENT

• 3.1. After a difficult 2019 the economy is expected to contract sharply, before rebounding strongly in 2021
  • 3.1.1. The economy entered the COVID-19 crisis from a weak footing
  • 3.1.2. The RBA has been as accommodative as it can be without delving into negative interest rates
  • 3.1.3. An inquiry into COVID-19 is threatening to bring Australia into the trade war
  • 3.1.4. Australians are so far proving resilient to COVID-19 but will still feel the economic impact
• 3.2. Confidence shatters to new depths, re-enforcing lower growth expectations and pushing consumers to save instead of borrow
• 3.3. House price recovery fizzledout, with an expected worst-case scenariodecline of up to 30%
  • 3.3.1. Actual price declines are yet to be recorded,although mounting rental vacancies suggest definite declines
• 3.4. The housing market had almost corrected itself by 2020, but mortgage holders remain exposed to shocks like COVID-19
  • 3.4.1. Faith in housing puts mortgage holders in big trouble for the coming storm
  • 3.4.2. Mortgage deferrals might not be in consumers’ interests

4. COMPETITIVE ENVIRONMENT

• 4.1. The big four have continued to lose their hold on the housingmarket while smaller players make inroads
  • 4.1.1. Market leader CBA has continued to innovate and invest in digital mortgage services
  • 4.1.2. Smaller players have been the main beneficiaries of market share change
• 4.2. Banks are likely to deal with COVID-19 by pushing profitability into the long term
  • 4.2.1. About 10% of mortgages are being deferred, highlighting the risk later in the year
  • 4.2.2. Lenders should be wary of being seen to act against consumers’ interests
• 4.3. The net interest margins of the big four continue to decline after years of good performance, with worse times to come

5. CONSUMER BEHAVIOR

• 5.1. Few customers have a positive view of their mortgage lender
  • 5.1.1. Australian mortgage lenders have been poor at meeting customers’ expectations
  • 5.1.2. ING has long been favored by younger digital clients
  • 5.1.3. Good customer relations pay off for Bendigo and Adelaide Bank
  • 5.1.4. ANZ leads consumer sentiment among the big four but continues to suffer market share falls
• 5.2. An omni-channel strategy will ensure lenders reach all potential borrowers
  • 5.2.1. Non-digital channels - supported by the large role of brokers - are still preferred
  • 5.2.2. Lenders need to be aware that customers are looking for service across channels

6. REGULATORY ENVIRONMENT

• 6.1. New banking code introduced to combat misconduct culture and introduce ethical behavior
  • 6.1.1. Banks will also be forced to increase their accessibility,making it harder for incumbents to become more digitally advanced -although COVID-19 gives them a reason to push back
• 6.2. With the government worried about competition in lending, the brokerage industry remains safe for now
  • 6.2.1. Regulators believe regtech and digital rules will help brokers and lenders deal with greater compliance
  • 6.2.2. The threat of new regulation still hangs over the brokerage industry despite its popularity with consumers

7. INNOVATION

• 7.1. Neo banks have emerged just in time to provide a digital mortgage experience to customers
  • 7.1.1. Neobanks have made a splash in savings but not mortgages as of yet
  • 7.1.2. Virtual reality has made it possible for remote viewings to take place even during lockdowns
  • 7.1.3. Neobanks’personal financial management tools will be important to borrowers during the COVID-19 crisis
• 7.2. 86 400 has focused on building a simple banking experience
  • 7.2.1. 86 400’s digital mortgage process is unmatched in Australia and a great product to sell during the COVID-19 lockdown
• 7.3. UBank has updated to stay relevant, with its Miachatbot perfectly suited to the COVID-19 crisis
  • 7.3.1. UBank still has some way to go to catch up to the neo banks

8. APPENDIX

• 8.1. Abbreviations and acronyms
• 8.2. Methodology
  • 8.2.1. GlobalData’s 2019Banking and Payments Survey
• 8.3. Secondary sources