There has been a lot of hubbub around the traps of late about borrowers having access to some great deals due to revitalised competition in the finance sector. But while this might have brought a smug smile of self importance to Wayne Swan’s face, many smaller lenders are not quite so jovial.
Yes, there is a battle being waged for your business; that I won’t deny. But the reality is, while the big four boys are stomping around, making lots of noise and flexing their lending muscles, the little guys are struggling to be heard.
According to figures from the Australian Bureau of Statistics, non-bank lenders lost more than half of their market share in the March quarter, dropping from 2.7 per cent of all Australian mortgages to just 1.2 per cent.
Credit unions and building societies were not immune to the banks’ newfound domination either, losing ground from 8.3 per cent to 7.4 per cent.
Meanwhile, the big banks cut of the lucrative $1.2 trillion industry climbed to 91.5 per cent during the same period, up from 89 per cent in December 2010.
This recent demise of smaller operators in the market represents a significant change to the status quo from the late 1990’s, when lenders such as Aussie and Wizard introduced lower rates to borrowers who were fed up with being at the mercy of the CBA, NAB, ANZ and Westpac.
Many jumped ship to take advantage of competitive offers from smaller lenders and in 2003 their market share peaked at 15.2 per cent, while the banks’ stake dropped to just 76.9 per cent.
Industry experts are now concerned that with the recent significant fall in market share, the non-banks are no longer able to keep pace with the big banks and instead of fostering competition, we could see a return to the days when banks could pretty much do as they pleased.
Chief executive of the Mortgage and Finance Association of Australia (MFAA) said, “The non-banks brought a lot of competition to the mortgage market. They found ways to lower their interest rates and create incentives for home buyers to borrow from them.”
He says this turnaround in fortunes is partially due to the GFC, which curtailed the non-banks’ funding model and saw home lending become the domain of institutions that also took deposits.
However the government’s decision to ban deferred establishment fees – which I predicted would be detrimental to industry competition months ago – just happened to coincide with a drop in market share for the non-banks from 3.3 per cent to 1.2 per cent in just five months.
This emerging trend should cause as much concern for consumers as it has for those of us in the industry who realise that if smaller lenders are forced to shut up shop, we could see the big players once again have us begging for a better deal.
Food for thought…