Published : Jul-2020
No. of Pages : 44
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
8.4. Further reading
List of Figures
Figure 1:Mortgage lending in Australia is expected to be balanced between investors and owner-occupiers
Figure 2: Owner-occupier gross advances are expected to remain at two thirds of total gross advances across 2020-24
Figure 3: Banks (excluding mutuals) have increased their dominant hold on the mortgage market
Figure 4: Fixed rates and tracker mortgage rates have diverged from variable-rate products
Figure 5: 61-80%LVR mortgages remain the dominant form of new mortgage flows
Figure 6: Investor finance growth is no longer several times higher than housing finance growth
Figure 7: Housing market growth is now biased in favor of first home buyers
Figure 8: GDP growth and inflation are expected to fall throughout the year, before rising strongly
Figure 9: Wage growth has crept up in the last year but is well below long-term averages
Figure10: Even after a recovery in confidence, businesses and consumers are still wary of the future
Figure 11: House prices are expected to decline throughout the year, with the NAB projecting falls into 2021
Figure 12: House prices may have corrected but consumers remain highly leveraged
Figure 13: The big four have steadily lost ground to smaller players in the mortgage market
Figure 14: GDP growth was significantly below the trend rate in 2019 but inflation remained stable
Figure 15: On average, customers have a negative view of their mortgage lender
Figure 16: Significant numbers of frequent digital users still prefer to use multiple channels when arranging to borrow money, particularly bank branches
Figure17: 86 400 has focused on making its home loan process as simple as possible
