The largest financial companies have doubled their mortgage market share since 2020
The share of new home loans taken out by the largest financial firms has doubled since 2020, according to data from CoreLogic.
Companies such as Basecorp, Bluestone, Avanti Finance and Resimac have increased their market share of new home loans from 3% in 2020 to 6% in 2022.
Mortgage is big business. Reserve Bank data shows that between the start of the year and the end of April, $23.3 billion was lent out in the form of new home loans.
The increase was equivalent to hundreds of millions of additional dollars lent by non-bank entities, which often came with higher interest rates and were generally given to riskier borrowers.
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Research manager Nick Goodall said when non-bank and second-tier lenders were included (which included companies like Co-operative Bank and TSB), these companies increased their market share by 10% in 2020. to 14% in 2022.
The average rate for a one-year fixed mortgage offered by banks is 4.85% for those with a 20% deposit.
By way of comparison, the financial company Resimac announces a one-year fixed term interest rate of 6.19% to the same group.
Goodall said the increase in market share of non-bank lenders was partly due to tighter regulation within banking sectors.
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 20% deposit , and up to 5% on loans to investors with less than 40% down payment.
Changes to the Credit Agreement and Consumer Credit Act (CCCFA) also likely contributed.
The changes led to more onerous checks required by lenders before a loan could be granted, and introduced fines if the loan was found to be irresponsible.
Squirrel Mortgages head John Bolton predicted in January that this would happen.
He said that under the CCCFA, bank executives and directors could be personally fined $200,000 if their bank fails to follow the rules.
Because the banks were so big, there could be up to five steps between the banker on the ground making the loans and the executive who was personally liable if the loan was non-compliant.
Leaders of non-bank lenders were generally closer to the action and would therefore feel safer signing loans, Bolton said.
More recent amendments to the CCCFA came into effect July 7, which removed the general requirement for lenders to walk through months of borrower spending and allowed lenders to recognize that spending habits can change a times they got into debt.
Trade and Consumer Affairs Minister David Clark said banks and non-bank lenders have their own risk appetite and credit policies that determine who they are willing to lend to.
“Everyone, including non-bank lenders, is subject to the same CCCFA rules,” he said.
Clark said the rules strike an appropriate balance between ensuring consumers can access loans while maintaining a high level of consumer protection.