Business as usual?

Brokers processing

It's 'business as usual' for the mortgage broking industry reported AFG, the country's largest mortgage aggregator, in its media release yesterday.

Or is it?

Certainly there has been no noticeable impact from tighter lending standards on the average mortgage size, which increased to a record $504,900, up 4.3 per cent from a year earlier (and up from $360,000 at the beginning of the data series in March 2010). 

The main strength here was driven by Victoria and Queensland, and this generally mirrors the monthly housing finance figures reported by the ABS. 

Volumes have eased, however.

Although lodgement volumes increased seasonally to $14.6 billion in the June 2018 quarter, this was only a moderate increase on the equivalent figure from a year earlier (and indeed, AFG's rapid volume growth now appears to have a slowed since 2015). 

New normal

The composition of lending has changed significantly, too.

Investors now comprise 28 per cent of lodgement volumes, well down from 40 per cent at the 2015 peak. 

And interest-only loans comprise less than a fifth of new loans, way down from 59 (fifty-nine!) per cent at peak popularity in 2015. 

Thus some 81 per cent of new borrowers through AFG brokers are now taking advantage of cheap interest rates to pay down their principal immediately, instead of using buffers and mortgage offsets.

This is a substantial behavioural change, with impacts both for the housing market and the wider economy.  

Market share shifts

Perhaps most interesting aspect of the AFG numbers to me was that the gap between major and non-major lenders continues to shrink.

The figures suggested that consumers needing to look outside the Big 4 lenders to meet their needs - be it for refinancing, upgrading, or investing - are comfortable to do so. 

The majors now accounted for just 59.3 per cent of buyers, when well above 70 per cent was seen to be typical in 2013 and 2014.