The mortgage market in Australia has been great for the big banks. It has not been as great for consumers. The big banks have regained market share previously lost to the non bank mortgage providers that started to compete back in the mid 1990s with names such as Rams and Aussie Home Loans.
The property boom of 2000 2003 saw a huge percentage of new mortgage business going to the non bank lenders who were actively taking market share from the incumbent banks. The news released early in October that the Federal Government was providing capital for non bank mortgage companies is great news for consumers.
The best mortgages available for borrowers have, in recent times been available from the major banks. Lenders have been largely limited to using the major banks as sources of funding for home loans. Mortgage refinancing too has been largely funded by the major banks. Shortly, the smaller banks and credit unions will be able to re enter the market on equal footing with the major banks. A mortgage provider will thus be able to expand their offering to their customers.
For any existing home owner or new home buyer undertaking a home loan comparison exercise, seeking out the best mortgage for their purposes and particular circumstances, is certainly made easier by the ability to use the tools available online. With tools such as the mortgage calculator and home loan comparison chart, the entry of more lenders into the market is a good thing for the consumer.
Up to the time of the Global Financial Crisis (GFC) starting in October 2008, mortgage providers, both bank and non bank lenders such as credit unions and some large insurance companies, as well as international banks operating in the Australian market, were on equal footing. Lenders could source their own funding from institutions around the world. At the time of the GFC, much of this funding vanished, causing the Federal government to step in and offer the big banks a guarantee on the customer deposits.
This gave the banks a lower funding cost than the credit unions and non bank lenders. This is now being levelled out and mortgage holders who may seek refinancing or home buyers seeking the best mortgage will very soon have more choice amongst an increasing number of lenders.
Banks and non bank lenders, once actively competing in the market, will present consumers with much greater opportunities to secure a mortgage at genuinely competitive rates. The banks, while competitive with each other, have tended to be reluctant to erode their margins and seem to operate as a cosy ‘oligopoly’. The non bank lenders, if they are able to secure funding at market rates from the major institutions from around the world, will enable non bank lenders to offer lower interest rates in many cases.
Indeed, some credit unions have in the past proven to be very competitive mortgage providers as they have a very competitive base. This is because most of the depositors become the members who effectively own the company rather than shareholders. This gives them the opportunity to offer highly competitive deals in mortgage refinancing and add to the array of lenders.
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